HSA AND NOT ELIGIBLE ANYMORE - NOW WHAT PLEASE?

[WITAXLADY]

SO TAXPAYER WAS STILL CONTRIBUTING TO HSA AFTER RECEIVING SOC SEC AND (OOPS)

thru work.

Work said tough.

Now what - just leave be - stopped when she figured it out

or take out and pay 10% penalty?

that doesn't seem right when work wouldn't adjust?

Ideas anyone?

Thx

[WITAXLADY]

she removed the excess of $2382 in 3/6/2013

[kcjenkins]

I think she'd have a good chance of getting any penalty abated, since she corrected it as soon as she could, and the error was done by the employer. Let us know what you learn. Never had that situation, so I'm interested in how IRS handles it.

[Guest Taxed]

If I remember correctly there is an exception code for the 10% penalty. have not done one lately but I seem to remembeer if the excess is removed in a timely manner after discovery the 10% penalty may be waived.

[JJStephens]

Just ran into a similar situation a week or so ago (and posted about it).

Did she decline Medicare coverage when she signed up for SSI? If so, she's probably okay. One of the limitations on HSA contributions is that no contributions can be made if other health coverage (including Medicare) is in place. Merely receiving SSI does not negate her ability to contribute to an HSA if she declined MC. However, she must cease making contributions at least six months prior to enrolling in MC because MC becomes retroactively effective six months prior to the enrollment date or at age 65, whichever is later.

On the other hand, if she took MC when she signed up for SSI she's subject to the penalty. Not sure about the penalty abatement option--didn't check into that.

[jklcpa]

I think she is OK because she withdrew the excess contribution and earnings before the due date. See instructions for Form 8889 under "Excess contributions you make". If the taxpayer makes excess contributions, withdraws them, and doesn't claim the excess as part of the deduction for HSA, then no penalty is the way I read that. Or, if she takes the deduction that includes the excess and then shows the distribution (I think line 17 of the 8889), that would flow to 1040, line 21 as other income. IF she is 65, she meets one of the exceptions to the penalty and the 8889 includes a checkbox to show that an exception to the penalty is met. BTW, the penalty for excess distributions is 20%, not 10%.