Went on Medicare in 2023

[bellomello]

Something weird is happening when I go to the page titled "Let's Maximize Your Contribution Limit" (which seems to be a calculator for estimating how much I could have contributed to my HSA in 2023). Since I went on Medicare in Oct 2023, I click on the radio buttons for three months (Oct, Nov, Dec) as "Medicare or None", and keep the remaining 9 months (Jan-Sep) as "Family Plan" (which is what my employer had provided before my retirement in October)

As soon as I do this, my estimated Federal and State (MA) returns reduce by several thousand $s.

When I click on "Calculate Max Contribution Limit", I get a number (~$6500), which I presume is the allowed contribution to my HSA. I have made no contribution to my HSA in 2023, so I should be OK on that front.

But why do the Federal and state estimated returns drop by so much? Is there an IRS publication that explains this? Or is this a glitch in Turbotax? (I have the downloaded version, on a Mac)

[Mike9241]

your employer contributions are reflected on your W-2. code 12W which carries to line 9 of the HSA form 8889. you do not enter them as personal contributions.

your maximum family contribution - employer and personal - for 2023 since you started on Medicare in October, assuming you're over 55, is 8750 times 9 divided by 12 or 6562.50

did you use the last-month rule for 2022 to make a full year's HSA contribution?  If so you had to be covered only by a HDHP for all of 2023. if not some of that excess comes back as taxable income.

were you on only a High Deductible Health Plan for the first 9 months of 2023? it's required. certain specialty types of insurance are allowed like dental and vision. A non-HDHP medical insurance plan that covers you is not allowed such as a spouse's non-HDHP

Were you covered by a  Flexible Savings Account that covered medical expenses for any part of 2023? that disqualifies any HSA contribution.  

we can't see the form or your answers so review the tax form and then check your answers. 

[bellomello]

Thanks Mike9241 for your detailed response, and for pointing me in the right direction: Form 8889.

When I went to the Forms View, I found that TurboTax had defaulted to "Family" coverage in Part III only for the month of December 2022. Therefore according to TurboTax I was probably failing the 12 month test since I had switched to Medicare (i.e. a non-HDHP plan) in Oct 2023, which then implied I had to pay a penalty for my 2022 HSA withholdings.

So I manually checked the "Family" option for the remaining 11 months in 2022, which seemed to fix my problem. I should also mention that I had to manually go through and enter similar information in 8889 for my wife as well and that fixed some more problems. 

Needless to say, I'm not impressed with Turbotax and their customer support: I talked to 3 people in 3 different calls, and was sent on wild goose chases in every case. There does not seem to be a way to escalate when the answers from the first line of Customer Support are demonstrably wrong.

A segway to another grouse: I feel like TurboTax could do much better on the topic of Roth IRA contributions. I could not figure out how much I could contribute for 2023 without any tax implications. The best I could do was to put in different amounts for my wife and myself, and see if my refund changed. To me, that's absurd: TurboTax should be able to give me this information because it has everything needed to calculate the right numbers.

[BillM223]

It's difficulty to diagnose these multi-year events with a simple outline of what happened.

So do me a favor, and tell me what you really did.

2022 - what was your HDHP coverage? Type and months? What were your HSA contributions? any excess described by TurboTax? Was anything not withdrawn in time?

2023 - what was your HDHP coverage? Type and months? What were your HSA contributions? any excess described by TurboTax? Was anything not withdrawn in time? Did you receive a 1099-A with a distribution code of 2?

[bellomello]

Hi BillM223, thanks for your interest. My answers to your questions:

2022: HDHP covered for the full year. $8300 HSA contributions for the year, done by payroll withholdings on a bi-weekly basis. No excess that I'm aware of, from TurboTax. Withdrawals were done throughout the year as bills came in.

2023: Had minimum creditable coverage Jan through Sep, went on Medicare in Oct. Zero HSA contributions. No excess that I'm aware of, from TurboTax.Withdrawals were done throughout the year as bills came in. I received a 1099-SA (I'm assuming you meant 1099-SA and not 1099-A) with a Distribution Code of "1".

[BillM223]

2022 - sounds good

2023 - yes, I meant 1099-SA - it's getting too close to April 15th.

- "Had minimum creditable coverage Jan through Sep, went on Medicare in Oct" - what does this mean? Was it HDHP? If yes, then was it Self-only or Family? or was it not HDHP, so no HSA contributions?

- when did you enter the months for Medicare? There is a screen titled, "Did [name] have Medicare any time in 2023?". Did you enter here? On the next screen, you are asked for insurance month by month. If you checked Medicare on the column on the right, what did you check on the left, Self or Family?

- There is another screen titled "Was [name] covered by a High Deductible Health Plan (HDHP) in 2023?" Did you click on anything on this screen, like "Yes I was covered by an HDHP for at least one month in 2023", or "No, I was not covered." If you clicked here, what did you do?

- The screen that has the "Calculate Max Contribution Limit", I wish they would just delete. The button is only right sometimes and leads to confusion on the part of the user. But I would like to know how you got her (see above).

[bellomello]

Hi BillM223:

Sorry for conflating HDHP and "minimum creditable coverage" in my previous reply.

2023:

- Yes, it looks like I did NOT have HDHP (the reason for my confusion on this is that a lot of changes happened - employer sponsored insurance, COBRA coverage, Medicare. So sorting through all this has been difficult). I also did not have any HSA contributions.

- Right after the screen "Did [name] put money into an HSA in 2023?" (Answer:No), I got a screen like you said "Did [name] have Medicare any time in 2023?" (Answer:Yes). On the next screen "Let's maximize your contribution limit", I get a monthly table with 3 options for ("Type of HDHP coverage": "Self only", "Family Plan", "Medicare or None"). I chose the "Medicare or None" option for each month, because that's what I had. The next screen is "Did you overfund your HSA in 2022" (Answer:No), followed by "Your HSA Summary".

- I cannot find the screen you mention"Was [name] covered by a High Deductible Health Plan (HDHP) in 2023?". I went through all my screens related to the HSA section using the "Back" button, but no luck. My sequence of screens is as above, followed by "What type of HDHP did [name] have on Dec 1, 2022" (Answer: Family)

- Agree with you on "Calculate Max Contribution Limit". See my answer on the second bullet above, to see how I got to this screen.

[BillM223]

Unfortunately. you were hit by the curse of the dynamic screen sequence in TurboTax. That is, the next screen you see if often determined by the last thing you entered. This sometimes makes it impossible to find the screen that you want.

So no HDHP at all in 2023. If you had not answered YES to the Medicare screen, the next (I think) would have been the "Was [name] covered by a High Deductible Health Plan (HDHP) in 2023?". Oh well, you were able to add the months as Medicare or NONE, so all's well.

Despite all this, I haven't answered one of your initial questions: "As soon as I do this, my estimated Federal and State (MA) returns reduce by several thousand $s."

This is because I don't know the answer - your path is a bit unusual, and I don't know what TurboTax was thinking at the time - and yes, TurboTax often does things in the background that are mysterious (correct but mysterious). I would often suggest that people not watch the Refund Meter too closely, because it would just upset them, and they would confuse a temporary result with the end result. Especially in the HSA interview, there are several place where the refund spikes and the user is puzzled and upset, yet two screens later, that is all undone.

So the important thing for you is to examine the final return and see if it makes sense.

[bellomello]

Thanks for your help, though.

I was able to get to what I think is correct by going to the Forms view and fixing a few things. I think there are glitches in the way TurboTax does things in the easy step view, and one needs to not take everything at face value!