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In November 2023 I applied for Medicare Part A (the same month I turned 65)

A few months prior to November 2023 I instructed my employer to stop the payroll deductions to my HSA account. Payroll promptly accommodated my request.

I was laid off the last day of October 2023.

The layoff severance package included a lump sum to be provided in 2024.

I just noticed the 2024 lump sum included a note that the company made a $1,100 contribution to my HSA (not from my payroll - more like a “going away present” from the employer.)

Given that I don’t want to run afoul of Medicare/IRS/whoever, I want to have the $ rescinded from my HSA account.

I spoke with my former employer’s payroll department; they said they couldn’t help and then referred me to the bank that manages my HSA.

I spoke with the bank that manages my HSA; they said I could complete an “Excess Contribution and Deposit Correction Form”. However, it appears the $ would not go back to the employer; instead, the bank that manages my HSA would simply send me a check, which seems wrong.

The Questions:

1. How can I fix this (return the funds and have the UNEXPECTED 2024 HSA contribution removed from my records)?

  1. If I can’t fix this, what is the penalty?

  2. Is it a single fine / am I to be penalized by having my Medicare premiums increased / or is it some other type of long-term penalty?

Chris W. Rea
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Sprph58
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2 Answers2

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It's not wrong for you to keep the money. The employer gave it to you (in your HSA), and presumably other employees as well. They have already told you that they don't want to deal with getting it back. They don't care whether it stays in the HSA or not.

The bank gave you the correct advice: Do an excess contribution withdrawal to remove this 2024 contribution from your HSA. In addition, if you had any HSA contributions in 2023, you need to check what your 2023 prorated contribution limits are, because you were not HSA-eligible for the entire year. If you find that your 2023 contributions add up to more than your 2023 contribution limit, you'll need to do an excess contribution withdrawal for that money as well. Keep in mind that, depending on exactly how old you are when you enroll in Medicare, you might be retroactively covered up to 6 months before your start date, which affects your HSA prorated limit. Take care of all of this before you do your 2023 tax return.

Also, be aware that whatever you receive from the HSA due to the excess contribution withdrawal will need to be added back in to your income on your tax return. If you do the excess contribution withdrawal now (in 2024), this would be added to your income on your 2024 return (the one you submit in early 2025).

Ben Miller
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Why is it important to you to give the money back to your employer and not keep it? As long as you withdraw the excess contribution, you're fine, it doesn't matter if you return the money to your employer. You do need to include it in your total taxable income though.

littleadv
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