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I qualify to enroll in Medicare in 2 months. I am learning about the 6 month look back period for HSA contributions. For the last 6 months, I and my employer together have contributed $1,200 to my HSA. Would the tax penalty be $72 (6% of $1,200?

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Mostly dupe I am 66 and am not yet enrolled in Social Security or Medicare Part A or B. I am currently employed and have a HSA and more linked there (and Stack wishes you to look at and benefit from already-answered questions) but this has some different elements.

First, if by 'qualify' you mean become eligible -- i.e. you will reach age 65 (or reach 24 months on SSDI for total disability, but that shouldn't be the case if you are gainfully employed) -- you won't get retroactive Medicare. You only get retroactive Medicare coverage if you wait until after you are eligible to enroll, and you only get 6 months if you wait at least 6 months after eligibility.

If you mean you are already eligible but have for some reason delayed enrolling until Dec. (for example because you were covered by the employer plan), and at enrollment you will have been eligible at least 6 months, only then you will get 6 months retroactive Medicare back to June. In that case, what matters is not when you made HSA contributions but how much. Many sources, even CMS (!), misstate this, apparently on the assumption that most people, especially if using employer payroll deductions, contribute the same amount every month and set that amount to reach the maximum permitted; that is indeed common, but neither required nor universal.

As far as IRS is concerned, the total you can contribute during the year is determined by how many months of that year you were covered by an HDHP and not by other coverage including Medicare (with limited exceptions not relevant here), so in this case your 2021 contribution limit is 5/12 of $3650 for self-only or $7300 for family plus $1000 if you're over 55, which you must be if you are becoming or already age-eligible for Medicare. Since you didn't mention family, 5/12 of $4650 is $1937.50. If you and employer combined have made 9 monthly contributions of $200 each (and stop there) that totals $1800 and you are not in excess at all.

However, if you had made or now do make excess contributions and don't correct them, you have to both report them as income (i.e. you cannot exclude or deduct them, as you can valid contributions) and pay any resulting income tax, AND pay an additional 6% of the excess amount (per year it remains uncorrected), commonly called a penalty but technically an excise tax. However, you can have the plan administrator correct the excess contribution by returning it to you with any allocable earnings by the filing deadline (next April 15, or Oct. 15 if extended). In that case you need to pay regular income tax on the correction amount, but not the additional 6%.

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  • +1. I would emphasize is that the 6% excise penalty needs to paid every year that the excess remains in the HSA. So it’s not like you can pay the penalty and then leave the money there. If you pay the penalty for failing to remove it in 2021, you’ll still need to do the excess contribution withdrawal in 2022, or pay the penalty again.
    – Ben Miller
    Oct 6, 2021 at 10:27

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