![]() You’ll pay back taxes plus an additional 10 percent tax if you enroll in Medicare during your HSA testing period.Excess contributions will be taxed an additional 6 percent when you withdraw them. Your contributions after you’re enrolled in Medicare might be considered “excess” by the IRS.Your contributions will be added back into your taxable income for the year. You’ll be subject to back taxes on any contributions made after your Medicare enrollment date.The amount of penalty you’ll pay depends on the situation. You’ll pay tax penalties if your HSA contributions and your Medicare enrollment overlap. However, you won’t be eligible anymore once you’re enrolled in Medicare. As long as you’re eligible, you’ll be able to contribute to your HSA and not pay taxes on that money. Is there a tax penalty when using an HSA with Medicare?Īll the money you contribute to an HSA is pretax. You can use the money toward Medigap premiums, but you’ll need to pay taxes on the money you withdraw to do so. This means you can’t use the money in your HSA toward the cost of these plans without paying taxes. A Medigap plan isn’t considered a qualified medical expense. Medigap, also known as Medicare supplement insurance, is optional coverage that can help you pay some of the out-of-pocket costs of using Medicare. Can I use my HSA to pay Medigap premiums? You’ll be able to use HSA funds toward any of these costs. Each plan will have its own costs for premiums, deductibles, and copayments. Your costs for Medicare Part C (Medicare Advantage) and Medicare Part D (prescription drug coverage) will depend on the plan you buy. You’ll also pay a daily coinsurance amount once a hospital stay lasts more than 60 days in a benefit period. While most people don’t pay a premium for Part A, there’s a deductible to cover each year. You can also use your HSA toward your Medicare Part A (hospital insurance) costs. You can use the funds in your HSA toward any of these costs. Additionally, you’ll pay 20 percent of the Medicare-approved cost for most covered services. Medicare Part B (medical insurance) has standard costs, including a monthly premium and an annual deductible. copayments and coinsurance costs for all parts of Medicare.You can use the funds from your HSA to pay healthcare costs, including your Medicare premiums. In addition, they’ll have to wait for open enrollment to sign up, since they won’t qualify for a special enrollment period.Ĭan I use my HSA to pay my Medicare premiums? For example, if they waited 2 years to enroll, they’d pay an additional 20 percent on top of the standard Part B premium for as long as they have this coverage. In this case, they’ll pay a late enrollment penalty if they do decide to enroll in Medicare later.įor Part B, their monthly premium will increase by 10 percent for each 12-month period they could’ve had Medicare Part B but didn’t. They don’t have another health plan and pay all health costs out of pocket. Instances when you would receive a penaltyĪs another example, let’s say a retired person chooses not to enroll in Medicare when they turn 65 years old. You’ll be charged a late enrollment penalty if you don’t. They won’t be able to contribute to the HSA anymore, but they will be able to use funds from it toward future healthcare costs.Īs in the example above, you’ll need to have a health plan in place to delay Medicare enrollment. They’ll qualify for a special enrollment period because they’ll lose their prior coverage after retirement. The couple can both enroll in Medicare when the employed person retires. If it’s an HSA-qualified plan, they can continue to contribute. The couple can both stay on the employer’s health plan. The employed person turns 65 years old but isn’t planning to retire yet. Instances when you will not receive a penaltyįor example, let’s say that a married couple has health insurance through one person’s employer. The same rules apply if you have coverage through your spouse’s job. Retirement qualifies you for what’s known as a special enrollment period. You can then enroll in Medicare when you do retire. You won’t face a late enrollment penalty as long as you have a health plan from your employer. What is the penalty for having an HSA and Medicare?
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