HSA and Medicare or Social Security application vs enrollment

[RMenschel]

I turn 70 in March. I am currently employed, covered by HDHP, and have an HSA. I plan to start Social Security at maximum, first payment in April.

I thought that this would mean I would need to stop HSA contributions April minus 6 = October. So I maxed out my HSA contribution in September. 

Social Security recommends applying for benefits 4 months before start, so I began my application in December.

1) Today I was informed by Social Security representative that this would mean I also applied for Medicare in December, and my enrollment would then be Dec-6 = June! Is this correct? Does Medicare enrollment begin six months before the initial Social Security application regardless of when SSA benefits start, assuming the applicant is over 65?

I apparently can cancel this application, completely undoing this issue.

2) If I apply in late March, with Social Security benefits to begin in April, will my Medicare enrollment then stretch back in September? To have enrollment begin in October, would I need to apply for Social Security benefits in April?

As of December 31 2020 I was NOT on Medicare, and was covered by and paying premiums for HDHP for the entire year. I therefore believed that I could contribute my full annual allotment for HSA early in the year ( completed in September), and there would be no conflict. Nobody I spoke to at that time at my employer, Medicare, or SSA indicated anything different.

3) But now it seems that even if I start my SSA application after April 15 2021, if Medicare enrollment gets backdated into October 2020, then my HSA maximum gets reduced by 3 months, and I've over-contributed by those 3 months, by 25%. Is that correct? If so, I need to withdraw that 25% and any interest/income earned by that 25%, before April 15. Is this correct? 

[BillM223]

This one of those quirks that is highly annoying to HSA owners.

Medicare starts either on the first of your 65th birthday month, or on the 1st of the previous month if your birthday is on the first of the month, or if you sign up within 6 months of turning 65, the start date is set back to the 1st of your birthday month, or once you are beyond 6 months from your 65th birthday, the most backdating is 6 months.

Please see this Medicare webpage to see if that makes more sense.

Now that you know that actual rules, you can decide if you want to rescind your Medicare application  (you'll have to look the rules for that up) and start on July 2nd. Now that I think about it, all that matters is that you have HDHP coverage on December 1st; after that, if you start Medicare in the middle of the month, it won't matter to your HSA contribution limit, so long as you had the HDHP coverage all 12 months. 

That is, you don't want to invoke the last-month rule (using the full annual HSA contribution limit just because you have coverage on December 1st), because then you have to stay under HDHP coverage through all of the next year, and with Medicare, you obviously won't be doing that.

Does this make sense?

[RMenschel]

> Now that I think about it, all that matters is that you have HDHP coverage on December 1st; after that, if you start Medicare in the middle of the month, it won't matter to your HSA contribution limit, so long as you had the HDHP coverage all 12 months. 

So, since I had HDHP coverage all 12 months of 2020, I can keep my full year's contribution in the HSA, even if I (re)apply for Social Security (and therefore Medicare) in (say) April? Or do I need to wait until July to apply, to avoid HSA contribution conflict? (I think I can get my Social Security back-dated to my birthday.)

[BillM223]

"So, since I had HDHP coverage all 12 months of 2020, I can keep my full year's contribution in the HSA, even if I (re)apply for Social Security (and therefore Medicare) in (say) April? "

I would wait until July. The problem is that if your Medicare is back-dated 6 months from April, then for November and December (at least) you would have had conflicting coverage, that is, even if you still had HDHP coverage in November and December, you will have to enter Medicare for those months if your Medicare get back dated to those months.

Please note that when doing your 2021 return, that you may still be asked "What type of HDHP coverage did [your name] have on December 1, 2020?".

When you truthfully answer Family or Self, you will be told that your coverage has lapsed and please answer these questions so that we can calculate your penalty.

But when you indicate that you had HDHP coverage for every month (one of the questions) in 2020, then TurboTax will realize that you did not need the last-month rule, so didn't need to be clear of Medicare in 2021. So no penalty will be calculated, which is what you want. It's just a bit disturbing, just don't be surprised but answer the questions, and you should be all right.

[paulgk123]

I ran into that same issue.  I naively thought that the rule was back 6 months from when my Medicare would become effective, NOT  the date I started the application.  (I wanted to give myself plenty of time to see the application guidelines  -- so wanting to be prepared is a mistake.)  I can't think of any reason at all why the 6 months has to start from the date of application, when the desired  effective date is also on the application.   I am missing  something?

[paulgk123]

Bill, can I get your thoughts on my similar issue?  

I delayed Medicare enrollment so  I could keep contributing to  my HSA.  I enrolled in Social Security and Medicare effective January 2021 -- the month I turned 66.  I knew about the 6 month retroactive period for Medicare A, so I thought I could  contribute to my HSA through June 2020.  However, I started my application process in September, and found that because of this, my Medicare A was retroactive to March 2020.  So, definitely any contribution from March to June is now ineligible.  Then, to make it worse, I discovered the pro-rated allowed contributions based on months of eligibility.  So, my question:  if I understand the IRS correctly, I would only be allowed two months of eligibility so my limit for 2020 would be 2/12 of ($3550+$1000) = $758?  Also, if my 2020 contributions were from me and from my employer, do I need to submit two requests for adjustment -- me directly to the fund and me to my employer?   **Thank you,  in advance!

[RMenschel]

Fortunately, I had a really good person in the local? Social Security office handle my application. After our discussions, she gave me the option to undo/withdraw my SocSec application, so it had no impact on my 2020 HSA contributions. There's also the ability when you do start SocSec of getting back-payments for a few months. 

Fortunately I'm still working, so don't need the SocSec funds. So I'm putting off applying for Social Security until July 2 (they have strange rules about the first day of the month). The six-month look-back will then go only to January, and I am therefore qualified to have contributed ALL of my HSA maximum for 2020. 

In that July application, I'll be applying for Social Security retirement benefits to be active as of my 70th birthday in late March. Once my new application is approved, I'll be able to receive a check for all benefits from April forward that I "missed" because of my "late" application. 

This solution won't work for everyone, but since I can continue working through July, it works for me. 

[BillM223]

@RMenschel

Good information. Thanks.

@paulgk123

All Medicare says on its website is variations of "After that, your coverage start date will go back (retroactively) 6 months from when you sign up." It does not explain if that is when you apply or when you are approved or what. See When will my coverage start.

I am not certified as a Medicare expert, so I would have to defer that to someone who is.

"I knew about the 6 month retroactive period for Medicare A, " More precisely, it's up to 6 months, depending on how far away you are from your 65th birthday.

"So, definitely any contribution from March to June is now ineligible." Look carefully, March's coverage is what coverage you had on March 1st. I don't know how Medicare does this, but if they tell you that the Medicare coverage started on March 2nd or anytime after, then March is still an HDHP covered month.

"I discovered the pro-rated allowed contributions based on months of eligibility. " Yes, that is how it works.

" I would only be allowed two months of eligibility so my limit for 2020 would be 2/12 of ($3550+$1000) = $758? " Yes, that is correct.

"if my 2020 contributions were from me and from my employer, do I need to submit two requests for adjustment -- me directly to the fund and me to my employer? " No. When you go through TurboTax and indicate Self-only coverage for Jan-Feb and Medicare after that, TurboTax will indicate that you have excess contributions and ask you how much you want to withdraw by the due date of the return (May 17th unless you are in Texas, Oklahoma, or Louisiana).

Let TurboTax tell you the amount, then you contact the HSA custodian and ask for a withdrawal of excess contributions (use this exact phrase - or look for an online form on the HSA custodian's website that will let you ask for this online).

No need for two adjustments, just this one. Don't even tell your employer about this, because this does not affect them - the W-2 that they printed was correct and does not need to change.

TurboTax will automatically add back whatever part of the code W amount from box 12 on your W-2 that is in excess to line 8 on Schedule 1 (1040) so that it is taxed as it should be, and TurboTax will remove whatever part of the direct contribution (not through the employer) that was considered in excess from line 12 on Schedule 1 (1040).

Other than asking for the return of the excess contributions, all you will have to do is get the check from the HSA custodian and cash it.

[lb93]

I have the same problem.  I didn't realize applying for SS at 70 would enroll me in part A.  I turned 70 in APril 2022, applied in May, and got accepted in mid July then got a Medicare card.  Arghh.  I made an excess HSA contribution withdrawal but don't know what kind of paperwork I will get.  What should I get and what should I do with it? The excess was $900.  I would like to file amended 2021, pay tax and penalty and get it over with.  Unfortunately, due to a form TurboTax refuses to support, I had to file on paper. I filed by mail on 3/28/2022 and it has not been processed yet.  They are saying 6 months.   

What form should I demand from the HSABank and how should I enter it?  Amended 2021 or in 2022? 

Thank you in advance. 

[Mike9241]

you are saying you went on medicare in July 2022. any HSA contributions for 2021 would not be limited because of this. there is nothing to amend for 2021. in 2022 you could make HSA contributions of 1/2 the maximum for the year because you were not on medicare for the first half of the year.  you'll get a 1099-SA reporting the withdrawal of the contribution. any earings on the excess should also have been withdrawn. did you do the withdrawal without telling the HSA administrator that it was an excess contribution for 2022 you were withdrawing? if you didn't and /or did not withdraw earnings, contact the administrator immediately.  

[lb93]

I received my medicare card in july but it was backdated to october 1, 2021.  So I have requested a withdrawal of 3 months of hsa from 2021 and I am also adjusting the amount withheld for 2022. 

[Mike9241]

you may need to amend 2021 since you were only allowed 75% of the maximum for 2021. 

self only - under 55 $2700

self only - 55 or over  $3450

if there was family coverage (spouse)  the amount that could be contributed would depend on additional factors such as the age of your spouse, whether your spouse was covered by a high-deductible plan, whether covered by medicare, months covered. 

[NCperson]

@Mike9241 - Medicare has this '6 month' lookback provision.  When you are accepted by Mediciare, you are ineligible for HSA contributions retroactive to 6 months before you get on Medicare, but not the months prior to turning 65 (not an issue here). OP;s maximum 2021 cotribution is based on 3/12 of whatever his 2021 maximum HSA contribution was calculated as, even if the contributions were made after March, 2021 (but before OP filed the 2021 tax return). 

@Opus 17 has an excellent write-up in another post, which I can't put my hands on currently. 

[Mike9241]

@NCperson what is your source

iRC 223(b)(7)

(7)Medicare eligible individuals

The limitation under this subsection for any month with respect to an individual shall be zero for the first month such individual is entitled to benefits under title XVIII of the Social Security Act and for each month thereafter.

also, there's nothing in IRS pub 969 about this. 

[Opus 17]

@Mike9241 

@NCperson 

@lb93 

A person is ineligible to make HSA contributions once they are "enrolled" in Medicare.  Pub 969, page 3, column 2.

The tricky part is figuring out when you are "enrolled."  If you enroll during your initial eligibility period (which I think is 3 months before your 65th birthday up to 5 months after your 65th birthdate), your enrollment is effective on the first day of the month in which you turn 65.  If you enroll after your initial eligibility period, your enrollment is backdated 6 months (but never before your 65th birthday).  This is not specifically described in IRS pub 969 because the IRS does not administer the Medicare rules.  The only thing the IRS cares about is that if you are enrolled in Medicare, you can't contribute to an HSA.

If @lb93 received their Medicare card in July 2022 and it is backdated to October 2021, then they are enrolled as of October 2021 (that's the "backdate" rule in action).  They aren't further backdated to March 2021.  Their contribution limit for 2022 is zero, and they need to remove all 2022 contributions.  Their contribution limit for 2021 is $3450 if they were covered by a single HDHP and their limit is $6150 if they were covered by a family HDHP.

I don't have time now to explain the procedure, I can do that tonight if it is still needed.

Also, if @lb93 is married, there may be an opportunity for their spouse to contribute to an HSA if they are covered by an HDHP and are not covered by Medicare, even if the plan is owned by their spouse.  (Spouse A can contribute if spouse A is "covered" by a qualifying plan, even if the plan is owned by spouse B.)