Excess (or not) HSA Contribution Problems Due to Medicare Enrollment-6 Month Rule

Question

I'm hoping someone can guide us to solve our HSA problem.

In April 2024 my wife filed an application for Social security benefits (she will be 70 this year), which she supposed to receive in July 2024. Her application was approved in May 2024 and because of this, she was automatically and retroactively enrolled in Medicare Part A. She is still working and has been contributing to her HSA account until the end of March 2024. We are both insured under her high deductible group insurance plan. She was making her contributions through her employer including $1,000 bonus contribution. Her 2023 contributions were $4,000 and returned check for October-November 2023 period was $692. I do not have an HSA account. We had no idea, that she should has stopped contributing to her HSA 6 months before applying for SS. We asked her HSA custodian to send her a check for excess contributions dating back to January 2024, but it shows that her Medicare Part A coverage started in October 2023 not in January 2024 as we originally thought. We again filed an excess contribution form and requested all contributions for October-December 2023 to be returned, because her medicare kicked in in October 2023. We already filed our taxes in March 2024, without knowing about those issues. Right now, I'm being told by different people that these are not excess contributions since they were contributed within allowable limits and she could still contributing to her HSA even when on Medicare, but when I'm reading some guides about that issue it clearly says that because she was older than 65 and enrolled in Medicare in October 2023, her HSA contributions should be removed and equal to zero from October 2023. We really don't know how to approach this problem. We use TurboTax to do our taxes, but filing an amended tax return might require overrides and filing a paper return.

My questions:

1. Are these 2023 contributions for October-December considered "excess contributions"?

2. We already filed 2023 joint tax return, do we have to file an amended 2023 tax return or is there any other easier way to correct this issue?

3. Should we do nothing, deposit checks for excess contributions and wait until 2025 for 2023-2024 HSA forms and file 2024 tax return based on those forms and report those contributions as other income, because most likely those 1099 forms would have code 2?

4. Return the check (if possible) for 2023 excess contributions to the custodian and do nothing and wait until the next tax year. We already requested all contributions for 2024 to be returned ($1,900) and she stopped contributing to her HSA in 2024, she has zero contributions for year 2024 now. Even if the IRS asks to file an amended 2023 return, the tax on those 3 month contributions of $692 is not a huge deal.

5.Keep the check for 2023 contributions and file a 2023 1040-X return showing returned $692 contributions plus earnings as other income on schedule 1. This is my least favorite option because I would have to mess with total HSA contribution amounts and other issues and this would most definitively cause problems while filing 2024 taxes. Turbo Tax does not allow any overrides for e-file.

...or maybe there are other options

I would greatly appreciate any help.

Here's one of the articles I've been reading about the issue, but this still doesn't help me to solve our problem: https://www.journalofaccountancy.com/issues/2021/jul/medicare-rules-on-hsa-after-age-65.html

Thank you,

Answer 1

To be clear, it doesn't matter when the contributions were made; the limit for the year is determined by which months she had only HDHP coverage (and not Medicare), but within that limit they can be made anytime, even in the following year (2024) up to April 15 (this is similar to IRA). Payroll deduction plans often make it convenient to align the month when the contribution is made to the eligibility conferred by that month, so contributions made in Oct-Nov (why not Dec?) might correspond to the coverage for Oct-Dec, but they might not. You need to look at the numbers.

She had family coverage plus catch-up, so even if you are under 55 her limit would have been $8750 for the whole year, and instead was $6562.5 for the 9 eligible months. Even using self-only $4850 for whole year I get $3637.5 and 4000-3637.5=362.5 not 692!

Unfortunately I don't think there's any way now to re-correct a correction that was itself wrong; as far as tax law is concerned you have undone part of the 2023 contribution, so your deduction for that part is (now) improper and should be amended. And you should fix the eligibility computation on lines 3-8 since they occur on the same form even though they won't actually affect the tax result. Sorry. However, FWIW, the earnings in the correction are reportable as other income for 2024 not 2023 (this is unlike an IRA correction).

You might look to see if there is a TCE site in your vicinity still open (mostly for people filing on extension). They will be much less busy now than they were in Feb-Apr, and according to the published training materials I sometimes look at for fun(!) they can efile 1040X. (This might be conditional on the original being efiled, but you're okay there.)