Medicare/HSA

[Gretel]

Have a problem with seemingly no solution:

Employee with HSA retired a year after being eligible for Medicare. Here are the dates:

12.2016 applied for SS & Medicare to start (both) 7.2017
6/30/17 last day of work
Medicare card says covered since 6.1.16 (which officially makes her ineligible for HSA contributions even though the correct date is 7.2017

Client makes several phone calls and nobody is willing or able to change the date on the card and reported to IRS. They explained to her that the date of application determines the date that the Medicare card shows and has nothing to do with the date actual coverage starts.

Having nothing in writing as to the actual date of coverage, how will my client proof to the IRS that they have wrong information. One would think that the IRS is aware of the issue (Medicare sure is but they say there is nothing they can do). Anyone else having this issue?

[Rapid Robert]

Have a problem with seemingly no solution [...]
Having nothing in writing as to the actual date of coverage, how will my client proof to the IRS that they have wrong information. One would think that the IRS is aware of the issue (Medicare sure is but they say there is nothing they can do). Anyone else having this issue?

Coverage and enrollment are not the same thing. Although it may not be as well-known as it should be, your client's dilemma is documented and explained at the Medicare site. Basically, they are correct, and there is no "solution", your client is ineligible. IRS Pub 969 only uses the term "enrolled", not "covered".

https://www.medicare.gov/Pubs/pdf/11036-Enrolling-Medicare-Part-A-Part-B.pdf

"You can’t contribute to your HSA once you’re enrolled in Medicare. If you contribute to your HSA after your Medicare enrollment date, you may have to pay a tax penalty. If you’d like to continue contributing to your HSA, you shouldn’t apply for Medicare, Social Security, or Railroad Retirement Board (RRB) benefits. Because your enrollment date for Medicare (i.e., when your coverage starts will generally be 6 months before your application date, you must stop contributing to your HSA 6 months before applying for Medicare.

To avoid a tax penalty, you should stop contributing to your HSA at least 6 months before you apply for Medicare."

[Rapid Robert]

What I don't know, is can a contribution to an HSA be recharacterized prior to the extended due date of the return.

[Gretel]

Thank you, Rapid Robert. That is too bad and doesn't make sense but it is what it is. I read this before but haven't caught on to the fact that it goes by enrollment. I will find out what, if any, can be done for 2016.

[Kram BergGold]

TTB pages 13-31 and 13-10

The excess can be removed without penalty by the due date plus extensions.
If a deduction has been claimed for the contribution, then it has to be added back as income.

[Gretel]

Thanks, unfortunately, tax return was filed early in the year, so the extension rule does not apply. Will have to amend tax return and have client remove excess funds and earnings.

[Rapid Robert]

Thanks, unfortunately, tax return was filed early in the year, so the extension rule does not apply. Will have to amend tax return and have client remove excess funds and earnings.

Maybe this is one of those “Filed pursuant to section 301.9100-2” situations, where under certain conditions you can remove the excess up to six months beyond the due date (excluding extensions)? i.e. you have to mid-October regardless of when the return was filed or whether it was extended? I know that works with IRA recharacterizations, see Pub 590-A.

[TaxGuyBill]

Rapid Robert - Good idea.

According to a webpage by TaxAct, that is allowable.


If you timely filed your 2016 tax return without withdrawing a contribution that you made in 2016, you can still have the contribution returned to you within 6 months of the due date of your 2016 tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other 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).

https://www.taxact.com/support/1280/...-contributions

I'm still not 100% convinced that the HSA is not allowable. However, I can't find anything definitive that says it is allowable, so you may be right.

[Gretel]

Great find, thanks, guys. I am not convinced either but will leave it up to the client if she wants to amend the tax return or take the chances of IRS sending a notice.

Another issue are the 2017 HSA contributions which were made through payroll. I did not find any guidance on how to deal with this since these are not employer contributions but only paid through the employer after deducting from paychecks . I assume the employer will need to withdraw the funds and earnings and then do another paycheck taxing her for the part of the contributions.

[S T]

Reporting for HSA-Medicare Overlap

Taxpayer received SSA benefits letter in Jan 2017 for retirement benefits on deceased ex-husband account. In order to receive the benefits SSA retroactively initiated Medicare Part A back to June 2016.

Taxpayer is still employed and maintained a High Deductible Medical Program with HSA Contribution. of 4,350 for year 2016 -- Taxpayer received for 2016 a 1095C from Medicare along with her 1095B from her Employer Plan

It has been determined that the Taxpayer will owe 7/12 - $ 2,537.44 adjustment for having Medicare Coverage and also maintaining HSA coverage during 2016

Question, is the 2,537 adjustment reported on the 2016 tax return or the 2017 tax return?

If on 2016 how to report ? is it via the form 8889?

Taxpayer has withdrawn the funds of 2,537 in 2017, which will then provide a distribution form for 2017 that will need to be reported and hopefully elimate the 10% penalty?

I am thinking not to report for 2016 and report all in 2017, however could really use some guidance on this.

Thanks

Sandy

[Gretel]

Sandy, looks like you have pretty much the same situation as I and here is what I am doing:

I will follow the advise to file an amended tax return as recommended above, pasted below. I will change the contributions for 2016 to the amount allowable and hope the bank will send an amended contribution form to the IRS. This should take care of the 2016 contributions and the penalty. Funds will be withdrawn by 10/15/17.

(According to a webpage by TaxAct, that is allowable.


If you timely filed your 2016 tax return without withdrawing a contribution that you made in 2016, you can still have the contribution returned to you within 6 months of the due date of your 2016 tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make any other 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).

https://www.taxact.com/support/1280/...-contributions

[S T]

Gretel Thank you for the info!

Question, My Taxpayer has not yet filed the 2016, seems like you are preparing an amended - Are you using the form 8889 to make the adjustment, and if so how to complete?

Sandy

[Gretel]

Even better that he hasn't filed yet. Yes, I report the allowed amount of contributions on form 8889. I am not sure this is all you are asking. I hope your TP has told the bank that the withdrawal is for over-contributed funds from 2016 and he also has taken out the earnings for this amount.

[S T]

Thanks Gretel

Sandy