Excess HSA contribution due to Medicare lookback trap

[1dragonlady1]

I contributed $4,660 to my Health Savings account in 2024 through my employer (pre-tax payroll deduction) all 12 months in 2024.  I plan on retiring on 8/1/2025 so I have not contributed to HSA since January 1, 2025.

I applied for Medicare part A & B on 5/1/2025 for these benefits to be effective 8/1/2025 (I have employer sponsored high deductible medical insurance).  I was shocked to receive my Medicare card showing part A benefit effective 11/1/2024, part B benefit effective 8/1/2025.

This really threw me off as I didn't realized that Medicare part A is backdated 6 months from the date that I submit my application for part A and B.

Does it mean that I was only eligible to contribute to HSA for 5 months in 2024and must remove 7 months of HSA contribution + earnings to avoid the 6% penalty?   $4,660 divided by 12 months x 7 months = $2,718.33  + earnings.

How do I calculate earnings on $2,718.33?  I have $3,600 cash + $50k investments in the HSA (Health Equity).  Health Equity's Excess Contribution Removal form does not have a place to show earning attributed to the excess contribution so I need to calculate it myself.

Do I need to contact my employer so they can correct my 2024 W-2  or do I only need to contact Health Equity?  Will Health Equity issue some type of tax form for the excess contribution removal this year or next year?  

I have already filed my 2024 Federal and North Carolina taxes.  I understand that I can amended both the Federal and North Carolina tax return due to hurricane Helene.

Can Turbo Tax do Amended return for both Federal and North Carolina?   Please show me what to do in Turbo tax regarding this excess HSA contribution removal.

Greatly appreciated your help and input.

Thanks,

Vicki

[NCperson]

Your ability to contribute to an HSA stopped after 10 months of 2024. 

So assuming you filed SINGLE, the maximum contribution for 2024 was $5,150 (since you are over 55 years old) divided by 12 times 10 or $4292. 

[dmertz]

"Do I need to contact my employer so they can correct my 2024 W-2  or do I only need to contact Health Equity?"

Only HealthEquity.

"How do I calculate earnings on $2,718.33?  I have $3,600 cash + $50k investments in the HSA (Health Equity)."

HealthEquity should do the calculation based on the amount of excess contribution that you request to be returned and the timing of the contribution and distribution.  While the attributable interest is required to accompany the distribution of the excess, it is not part of the excess contribution itself.  With the value of the investments varying daily, the calculation can only be properly done using the investment values on the date that the return of excess contribution is processed, which means that the calculation needs to be done by HealthEquity.

" Will Health Equity issue some type of tax form for the excess contribution removal this year or next year? "

HealthEquity will report the distribution on a code-2 2025 Form 1099-SA.  Attributable gains shown in box 2 will be taxable on your 2025 tax return.

As NCperson, said, you were an eligible individual for 10 months of 2024 because your Medicare Part A coverage did not start until 11/1/2024.

[1dragonlady1]

Thanks for the response.

I called Health Equity, they have a procedure in place for situation like this.  The rep said to fill out their "Excess of Excess HSA Contribution Form", 2 months of excess contribution, round it up to $777, they will calculate the interest (should be minimal as the cash portion of my HSA account was paid 14 cents interest a month), process the withdrawal (sent to my bank account), processing fee $20, takes 3 business days.  She also said they will issue a corrected 1099-SA after the withdrawal has been processed.  I haven't submitted the form pending response from my employer HR Department.  

I will amend my tax returns with Turbo Tax upon receipt of the corrected 1099-SA.  Haven't amended my taxes before so we shall see.