HSA/Medicare Excise Tax

[tuneman01]

Turned 65 on 9/25, applied for SSA Benefits and Medicare on 12/25.  Got approved on 1/26 and says my Medicare Part A starts 9/25.  To avoid HSA excise tax, how far back do I need to withdraw excess contributions?  Back to 9/25 (sep-dec 2025) or further back?  Thanks

[BillM223]

The usual response would be back to when you turned 65 (i.e., 9/25); HOWEVER, the excess HSA contributions are calculated on an annual basis; that is, if in each month you contributed only half of the 1/12th of your contribution limit, you could well not need to withdraw anything at all.

That is, while it says when you go on Medicare, you can no longer contribute to your HSA, that is not literally true.

Instead, calculate 8/12ths times your Self or Family contribution limit, and compare this to what you actually contributed (all year). If your prorated rated contribution limit is more than what you actually contributed, then you don't need to adjust anything.

Please come back if this does not make sense.

[tuneman01]

Thank you for replying.  However, it did go over my head somewhat.  Here is what my HSA situation is.  I contributed equal amounts of $397.91/$397.92 for 24 pay periods up to the 2025 family limit of $9550.

[BillM223]

The excess HSA contribution is calculated on an annual basis, so you can ignore the situation if your 24 pay period don't align with the first of the months.

The amount you should have calculated for your allowed HSA contribution would be 6/12ths of the total possible contribution (so $9,550 divided by 2 = $4,750.00). Since the allowed contribution would be 1/2 of the total possible contribution (the $9,550), you will need to withdraw about $4,799.84 (the difference between $9,549.84 and $4,750.00).

Note that in any case, you should withdraw the amount that TurboTax tells you is in excess. I am only describing how TurboTax arrived at this number.

Now, you may have rounding errors because your pay seems to vary by one cent from pay period to pay period, so let TurboTax doe the calculation.

Don't withdraw any more than what TurboTax reports as the excess (because this is not allowed by the IRS), but you can withdraw less, if you want to carry over some of the excess to next year (tax year 2026).

I strongly suggest withdrawing the entire amount that TurboTax reports as excess, if you have the funds to do it. The result is simpler all around (really).

[tuneman01]

Thanks again for your help.  Not sure what "your 24 pay period don't align with the first of the months"?  Not sure why 6/12ths is used?  Not sure yet what or where to tell Turbo tax my situation of excess HSA so that it tells me how much to withdraw.  Perhaps when I start preparing my taxes I can figure that out.  Like Medicare started on 01/26 and I turned 65 on 09/25.  Thanks

[BillM223]

My apologies. The 6/12ths should be 8/12ths, based on your HDHP being valid from January through August, and your Medicare starting on 9/1/2025.

TurboTax will tell you the amount of your excess HSA contribution in the HSA Interview in the return. That is, when you start your return and begin entering data, in the section about HSAs, at some point, TurboTax will notice that your contributions exceed your calculated annual HSA contribution limit. At that point TurboTax will announce that you have excess contributions and ask how you wany them to be handled - (1) withdrawn, (2) partially withdrawn, or (3) carried over to next year.

My apologies again because it is much more common that taxpayers are halfway through their returns before they ask questions like these, so I mistakenly assumed that you were, too.

Just start your return and be looking for Deductions & Credits->HSA, MSA Contributions->HSA. And during that "interview" (series of questions about your HSA), be looking for the notice that you have excess contributions.

[tuneman01]

Ok thanks, 8/12ths make sense now.  I should be able to start working on Taxes this coming weekend and it will make more sense to me as I go through it.

[tuneman01]

Okay, I did taxes but I never got told about any excess contributions.  I'm the HSA contributor for myself and wife.  Following is what I did for HSA questions:

Q1 - 65 or older when distribution rec'd?  Because I turned 65 on 9/2/2025, I answered "No".  Correct?

Q2 - I used all money for medical expenses.

Q3 - Tot. Cont. $9550 (total dist. 11,185)

Q4 - Covered by HDDP

Q5 - For situations that apply to me, I said I had Medicare because its Retroactive to 09/2025 from 1/2026.

Q6 - For HDHP Type, I said "Family"

Q7 - For monthly types of coverage, I said Jan-Aug (Family plan) and Sep-Dec (Medicare or None).  Correct?

I also notice that Form 8889-T > Line 3 Smart Worksheet has "Family" for all months instead of "None" for Sep-Dec.  Is that correct?

Thanks

[BillM223]

Q1 - yes

Q2 - good

Q3 - OK

Q4 - OK

Q5 - correct

Q6 - "For HDHP Type, I said "Family"" Where did you say this? When you see "What type of HDHP coverage did [name] have during 2025?" - you should have answered "[name] had different plan types at different times of the year". It sounds like you answered "Family" for every month of the year?

Q7 - correct...

I don't why the 8889-T has "Family" for all months...Sep-Dec should have Medicare/None.

excess contributions - This should apply to your current year contributions. I am concerned that you did not get a message about excess contributions for 2025. I see that you should have had an HSA contribution limit of $7,162.50 after prorating the Family plan and you being 55 or over. Did you contribute more than that?

Your initial question was how much should you withdraw because you were on Medicare the last three months. As I answered, you should not withdraw anything until TurboTax detects your excess contributions, at which point, TurboTax will tell you what the excess is. That would be the amount of excess that you would withdraw. 

Are you not seeing this?

[tuneman01]

Okay, so I definitely get the excess contribution questions when I answer Q6 with "different plan types" instead of "Family plan".  The thing is, it seems to me that TurboTax missed detecting "Family plan" on Q6 while I answered Q7 with mixed plans on the monthly list.  It should have said that answers contradicted each other.  Now it shows the following:

1. 2025 monthly plan list for me:  Jan-Aug (Fam), Sep-Dec (Med or none) with Calc. Max Limit of $6,367

2. Type of plan I had on 12/1/2024:  "Family"

3. My Contribution in 2024:  Tot Cont. $9,300; Excess Cont: $0; Deduction allocated to spouse: $0

    I'm assuming from 2024 8889-S for spouse?

4. 2024 monthly plan list for me:  Jan-Aug (Fam), Sep-Nov (Med or none), Dec (Fam) but I set them all to "Family".  Correct?  I'm not sure why it had pre-populated with the mix in 2024.

5. Addition income under Last-month rule field was blank but it said I told it something different and to leave it blank.

6. Shows list of months for spouse in 2024.  I set them all to "Family" for her.  Correct?

7. Excess contribution of $3,183 with choices to withdraw or other.

I hope I'm doing this correctly.  Thanks

[MarilynG1]

If you had a Family HDHP, indicate 'None' for your your spouse (she was covered under your family plan) for 2024. 

For 2025, indicate what type of plan (if any) your spouse had for Sep-Dec, since you had Medicare for yourself for those months and 'None' for the months you had a Family plan. 

@tuneman01