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If I open a HSA my employer will contribute $1000 yearly, but I am not supposed to contribute to an HSA because I have Medicare Part A.

What is the penalty for contributing to an HSA when you have Medicare? Would I only have to pay regular taxes plus the excess contribution tax on any contributions? Would this cause problems for my employer in any way?

Also, my spouse is eligible for an HSA, but my employer won't do payroll deductions automatically to his account, and I also wouldn't receive my employer contribution. Is it possible to simply receive funds in my HSA even though I am not eligible, and then transfer them to his HSA to avoid any penalties?

Thanks.

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Would I only have to pay regular taxes plus the excess contribution tax on any contributions?

Yes, you'll pay regular taxes plus the excess contribution taxes on the contributions until you withdraw. So what would be your gain in doing this? The whole point in HSA is to use pre-tax money for medical expenses, and you're not only going to use post-tax money - you'll pay extra tax for doing that (6% for each year the contribution remains in the account). Are you trying to get the "employer match" in this way? Maybe just ask for a raise instead?

Would this cause problems for my employer in any way?

Not sure, but it might.

Is it possible to simply receive funds in my HSA even though I am not eligible, and then transfer them to his HSA to avoid any penalties?

No, HSA is a personal account. You can pay for dependents, but you can't move money between the accounts.

You can roll over to your own account.

See the IRS publication 969 for more details.

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  • I interpret the question as exactly what you're saying: she is looking to whether it's worth it to pay the penalties to receive the employer match. If the employer is giving $1000 and she's paying $166 in taxes to receive that, it's a good deal, right?
    – Joe
    Commented Mar 4, 2015 at 15:25
  • @Joe additional taxes, you mean. You'll still pay all the regular income taxes on these $1000. As I said - I don't know what would be the problem for the employer in this case.
    – littleadv
    Commented Mar 4, 2015 at 15:26
  • If she withdrew all the money from the HSA each year and claimed it as "other income" on her tax return, would she avoid the 6% excise tax? Would she also avoid payroll taxes on the $1000 in this case?
    – Ben Miller
    Commented Mar 4, 2015 at 21:22
  • @BenMiller I'm not sure. I would think, if comes under audit, it would be considered a wash transaction trying to hide wages and treated as tax evasion. While her intent is not to evade taxes but rather get the employer's match she's not eligible for (fraud on its own), for employer - that would be providing taxable income without paying taxes, which is tax evasion, even if unintentional. I wouldn't go there, seems very risky to me.
    – littleadv
    Commented Mar 4, 2015 at 21:31
  • +1. I think the best and easiest option is "just ask for a raise instead." Let your employer know that you aren't eligible for an HSA, so you won't ever be setting that up, but you'd appreciate a small raise to make up for the fact that you can't take advantage of the $1000 employer HSA contribution.
    – Ben Miller
    Commented Mar 4, 2015 at 22:08

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