HSA Contributions

[CS122]

During the year I had two jobs with a 2.5 month break between positions.  When I started my new job I elected to contribute the max to my HSA.  As I am completing my tax return, I am getting a message that I over contributed and must withdraw $1,600 from my HSA prior to 7/15.  I have family coverage and am eligible for catch up contributions and took into account the HSA contributions made in the first few months of the year.  Turbo Tax is indicating I am eligible to contribute $8,000 but when I include my information, I receive the over contribution message.  Any insight? 

[Anonymous]

if you HSA eligible on December 1, 2019 you must indicate that you were covered by a HDHP for the full year.  

also review form 8889 you may have done something wrong in entering contributions.  example your contributions would not include amounts contributed by your employer.  code w on w-2's

[BillM223]

It is possible to accidentally indicate to TurboTax that you made excess HSA contributions when perhaps you haven't.

I understand that the following list is long, but these are all reasons that taxpayers get excess contribution messages.

If you find that your situation is not one of these cases, then please make a new post in which you indicate:

• your HDHP coverage and for how many months
• your spouse's HDHP coverage and for how many months
• your HSA contributions (both through your employer and directly to the HSA)
• your spouse's HSA contributions (both through your spouse's employer and directly to the HSA)
• the amount of the excess
• whether or not either of you went on Medicare and what month
• whether or not (and the amount) of carryover of excess contributions from 2018 for either of you

***main answer***

One of the purposes of the HSA interview is to determine your annual HSA contribution limit.

As you probably know, the maximum limits in 2019 are:

• $3,500 - individual with self-coverage
• $7,000 - individual with family coverage
• If the HSA owner is 55 or older, then you add $1,000 to these amounts.

However, these limits assume that you were in an HSA all year. If you left the HSA during the year or started Medicare or had one of a number of change events, then the limit is reduced.

There are several major culprits for excess contributions (other than just actually contributing more than the limit).

First, if you did not complete the HSA interview - that is, go all the way until you are returned to the "Your Tax Breaks" page - the limit still might be set to zero, causes a misleading excess contribution message.

There are questions all the way to the end of the interview that affect the annual contribution limit.

Second, it is not unusual for taxpayers to accidentally duplicate their contributions by mistakenly entering what they perceive to be "their" contributions into the second line on the "Let's enter your HSA contributions" screen.

Normally, any employee who made contributions to his/her HSA through a payroll deduction plan has the contributions included in the amount with code "W" in box 12 on the W-2. This is on the first line on this screen. Don't enter the code W amount (or any part of it) anywhere on the return other than on the W-2 page.

Third, if you weren't in HDHP coverage all 12 months, then the annual contribution limit is reduced on a per month ratio. NOTE, this means that you have to indicate when and under what type of HDHP plan you had. Be sure to answer the questions on the screen entitled "Was [name] covered by a High Deductible Health Plan in 2019?".

Fourth, if you had a carryover of excess contributions from 2018, then this carryover is applied to 2019 as a personal contribution, which could cause an excess condition in 2019 as well. But note: if you had an excess contribution in 2018 but cured it by withdrawing the excess in early 2018, then do NOT report an "overfunding" on your 2018 return.

Fifth, the Family limit ($7,000) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $7,000 to his/her HSA and the other contribute $3,500 to the other HSA – the $7,000 limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $3,500).

Also, one more thought: did you turn 55 during 2019? If so, what month?

[MHODISH]

Your answer, I think, covers my situation, but let me ask specifically:

I have questions about HSA's. My wife (64 yeears old) and I were jointly covered by one family account. I became eligible for Medicare in October 2021, burning 65 then. I had erroneously been advised to make a deposit on the basis of 12 months eligibility back in January 21, so I need to back out three month's worth, or pay the 6% surtax on that. My question is about my wife's eligibility.

Since the family HSA was ended at the end of September, she apparently can make an HSA contribution for an account of her own, for the last three months of 2021,since there was no eligibility for the family plan any more.  I understand that the contribution must be made by tax filing day in April 2022. The question is the amount. TurboTax says an amount over 7000, which I think would reflect a whole year's eligibility. Is it right that she would get a whole year's worth, not just three month's worth, of eligibility? And being of age, does she get a full $1000 catch up contribution, or only a pro rata portion of it?

My understanding is that she should be entitled to deposit 900 + 1000 (3 MONTHS PRO RATA SHARE OF THE INDIVIDUAL 3600 ANNUAL ALLOWANCE, PLUS THE 1000 CATCH UP. 

Is this correct, or does the catch up get pro-rated also?

If I do not back out my overpayment, and elect to pay the 6% additional tax on that, does that affect her eligibility?

Thanks Bill.

Mike

[BillM223]

First, what was the type of HDHP policy? Was it originally Family, then changed to Self-only when you went on Medicare? Or did you keep the Family HDHP policy because there was someone else on it? What matters is what the HDHP policy was, not the particular arrangement of you and your spouse.

Second, there is no such thing as a "family HSA". Every HSA is owned by an individual. Yes, the fact that you both can contribute to your HSA and you can spend money our of the HSA for both of you makes it seem like a family HSA, but it's not. The HSA belongs to one or the other of you. Furthermore, even if you have an HSA, your spouse could have one, too. How I answer you question will depend on whether or not you both have HSAs or not.

Also note that when you go on Medicare, your HSA doesn't go away, you are simply unable to contribute to it anymore. You can still spend money out of it.

Did your wife open her own HSA when you went on Medicare?

Cam back and tell me where things stand vis-a-vis the questions I have asked, and be sure to enter "@" and "BILLM223" (without the space in between) so that I will be notified.

"does that affect her eligibility?" And no matter what you do in terms of an excess on your HSA, her eligibility is not affected in terms of what she can contribute (but the amount that she may be able to contribute may be limited).

[MHODISH]

@BillM223    Re: HSA Contributions

 Thanks for the fast response. To clarify, I will intersperse my answers below:

First, what was the type of HDHP policy? Was it originally Family, then changed to Self-only when you went on Medicare? Or did you keep the Family HDHP policy because there was someone else on it? What matters is what the HDHP policy was, not the particular arrangement of you and your spouse.

 I need to talk to my insurance carrier and get clarification this.  The policy definitely had both of us on a joint policy originally.  My intention was to after I remove myself from a it was a single policy for her.  However the insurance company still identifies it by my name.  Show, I'm not completely divorced from it.  I need to call in and get clarification

Second, there is no such thing as a "family HSA". Every HSA is owned by an individual. Yes, the fact that you both can contribute to your HSA and you can spend money our of the HSA for both of you makes it seem like a family HSA, but it's not. The HSA belongs to one or the other of you. Furthermore, even if you have an HSA, your spouse could have one, too. How I answer you question will depend on whether or not you both have HSAs or not.

Thank you for explaining that.  The HSA was in my name only. I was confused about this, and clicked the box in turbotax indicating that we both had HAS’s. I bet that is why it gave a nonsensical solution.

Also note that when you go on Medicare, your HSA doesn't go away, you are simply unable to contribute to it anymore. You can still spend money out of it.

Understood.

Did your wife open her own HSA when you went on Medicare?

She did not, because we are getting confusing information about this.  It is my understanding that she has until tax filing date in rule to do this for 2021.

Mike

[MHODISH]

@BillM223   I am going to call it a day. To be continued...

[MHODISH]

@BillM223 Bill, Are you online now? I would like to pick up this conversation from a few weeks ago, regarding my HSA contribution. Are you able to see the few messages that we had previously? If not, I can recap the situations. 

Thanks,  Mike Hodish

[MHODISH]

I did talk to our medical insurer, and after I left them, because of my medicare eligibility starting Oct 1, 2021, the policy was solely in her name. It is a High deductible policy, HSA eligible. So, the question: How much can she contribute for three months of eligibility, and being 63 years old, does she get a full year of catch up contributions ($1000), or is that pro-rated for 3/12 months, so $250.

Also, I, on incorrect advice, early in 2021 made my contribution as if I would have 12 months of eligibility. So far, I have not asked the custodian of the HSA to refund the overage. I understand that there is a penalty of 6% of the overage. If it is that little, it would seem like a smart move to leave the money there in the HSA...as it gives me many of the benefits of a ROTH IRA.  6% seems a cheap cost of entry. Correct thinking?

Does my wife's eligibility for the partial year have anything to do with whether or not I ask for my overpayment back from the HSA custodian?

[MHODISH]

I did talk to our medical insurer, and after I left them, because of my Medicare eligibility starting Oct 1, 2021, the policy was solely in her name. It is a High deductible policy, HSA eligible. So, the question: How much can she contribute for three months of eligibility, and being 63 years old, does she get a full year of catch up contributions ($1000), or is that pro-rated for 3/12 months, so $250.

Also, I, on incorrect advice, early in 2021 made my contribution as if I would have 12 months of eligibility. So far, I have not asked the custodian of the HSA to refund the overage. I understand that there is a penalty of 6% of the overage. If it is that little, it would seem like a smart move to leave the money there in the HSA...as it gives me many of the benefits of a ROTH IRA.  6% seems a cheap cost of entry. Correct thinking?

Does my wife's eligibility for the partial year have anything to do with whether or not I ask for my overpayment back from the HSA custodian?

[BillM223]

I can see the thread, but it would be nice if you would reframe your questions, since I am hoping that some of them have already been answered, so we don't need to go through those again. Let me know what issues you have left.

@MHODISH

[MHODISH]

Still where we were a few weeks ago. Medical situation in family; did not touch taxes since we last spoke. 

I did speak to our insurer, and found that we had a family insurance policy covering the two of us, until 9/30/21. It was HSA eligible. I funded an HSA in MY name.  After 9/30/21, if have verified with the insurer that she had her individual policy in place. This policy is also HSA eligible. 

The questions:

1. How much can Julia contribute to her HSA for her eligibility Oct-Dec 21 (after I was no longer on the policy, and she went forward with her own. I assume 1/4 of the annual max, correct? what about the catch up contribution, since she is 63, is that also prorated?

2. Complication: Acting on incorrect advice, back in early 2021, I contributed to my HSA what I would have been allowed to put in if I had had 12 months of eligibility.  I have not yet directed the custodian of the HSA to refund the overage. 

- I think you told me that the overpayment would get a 6% penalty if I don't withdraw it by tax day in April. It occurs to me that HSA money is similar to Roth IRA money, and if I can afford to let it compound there for years, it will be very useful later...so paying a 6% fee to leave it in the HSA would be a smart move. Am I looking at this correctly?

-If I do leave my excess contribution in the HSA, does that have any bearing on my wife's ability to start her own HSA as of 10/1/21?

Thanks, 

Mike

[BillM223]

"1. How much can Julia contribute to her HSA for her eligibility Oct-Dec 21 (after I was no longer on the policy, and she went forward with her own. I assume 1/4 of the annual max, correct? what about the catch up contribution, since she is 63, is that also prorated?"

First, she needs to have her own HSA. I say that because the catch-up bonus belongs to the owner of the HSA. That is, just because she is 55+, she could not contribute an extra $1,000 to your HSA, she could do that only to her own HSA.

Since she had a Self-only HDHP policy on December 1, 2021, under the last-month rule, she would be eligible to contribute a full year's worth of HSA contributions ($3,600) plus the entire $1,000 bonus if this is to her HSA and she is 55+.

Furthermore, since she shared your Family plan prior to October, there may be more of a ceiling, unless you used it all (remember that the 7,200 under the Family plan is shared between the wo taxpayers). Well, she is clearly entitled to the $4,600 under the last-month, so perhaps we don't want to complicate things.

The downside is that she must stay under HDHP coverage for all of 2022. Something to consider if she is approaching Medicare.

"so paying a 6% fee to leave it in the HSA would be a smart move"

Probably not, because it's 6% a year, so long as you carry the excess over. And once you went on Medicare, your opportunities to fix this shrink to only the most expensive option.

Yes, an HSA can be considered a good retirement tool, since you are not taxed on the money going in and are not taxed on the money coming out for medical expenses (and everyone has those eventually), AND if the day comes that you need the money otherwise, it's like an IRA, in that you can withdraw money for whatever and pay only the normal income tax on it, once you reached 65. And a lot of HSA custodians allow multiple types of investments (like stocks and mutual funds) once your HSA balance reaches a certain amount. But I would deal with that 6% carryover as soon as possible, or else the 6% a year and bank charges will eat up your remaining HSA balance.

[MHODISH]

I think that answers all of it. How do I mark that as the best answer.