HSA over contribution

Submitted by MARK CLELAND on Tue, 2016-06-21 17:03

Client’s employer contributes to HSA during 2015 and first part of 2016. Then in 2016 client decides that going on Medicare retroactive to January 2015 is beneficial. So in 2016 what should the client do? Seems to me he
has an over-contribution penalty to report on his 2015 tax return using From 5329. Then in 2016 he takes the over-contributions (both 2015 and 2016) as a distribution and reports that as income in 2016. It is my understanding that the employer does not get the money back. What about the earnings on the over-contribution in 2015?



Submitted by Alan - IRA critic on Tue, 2016-06-21 20:07

From IRS site:

Excess Employer Contributions Excess employer contributions are the excess, if any, of your employer’s contributions over your limitation on line 8. If you made a qualified HSA funding distribution (line 10) during the tax year, reduce your limitation (line 8) by that distribution before you determine whether you have excess employer contributions. If the excess was not included in income on Form W-2, you must report it as “Other income” on your tax return. However, you can withdraw some or all of the excess employer contributions for 2015 and they will be treated as if they had not been contributed if:

  • You make the withdrawal by the due date, including extensions, of your 2015 tax return (but see the following Note),
  • You do not claim an exclusion from income for the amount of the withdrawn contributions, and
  • You also withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings.

 

Note.If you timely filed your return without withdrawing the excess contributions, you can still make the withdrawal no later than 6 months after the due date of your tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” written at the top. Include an explanation of the withdrawal. Make all necessary changes on the amended return (for example, if you reported the contributions as excess contributions on your original return, include an amended Form 5329 reflecting that the withdrawn contributions are no longer treated as having been contributed).



Submitted by William Tuttle on Tue, 2016-06-21 23:54

I beieve there is a problem with your basic premise. Unless Medicare enrollment occurred more than a year ago, there would be no way to retroactively enroll in Medicare to 01/01/15. Medicare retroactive enrollment is limited to six months (no earlier than 65). If you will be >= 65 1/2 on 07/01/15 and you enroll in Medicare today, you will be retroactively enrolled on 01/01/16. To the best of my knowledge there is no way to electively decline, reduce, or increase the retroactive period.



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