HSA Eligibility and Medicare

Key Takeaway

An individual enrolled in Medicare (including Part A) is ineligible to contribute to a Health Savings Account (HSA), or to receive employer contributions to an HSA. Following are some important considerations for employees who are, or will soon become, Medicare-eligible.

HSA rules specify that account owners cannot have other health coverage that is not “high deductible” coverage. Coverage under Medicare, including Part A, is considered conflicting coverage and results in being ineligible for an HSA. If you, the HSA owner, are not enrolled in Medicare, you remain eligible for the HSA even when your spouse is enrolled in Medicare. Eligibility is only determined by the owner of the HSA and what coverage that individual has.

HSA eligibility is determined on the first day of every month. You become ineligible on the first day of the month that Medicare coverage begins. For example, you turn 65 and become covered by Medicare in July. You are ineligible for an HSA beginning July 1.

Individuals who lose HSA eligibility mid-year will have a pro-rated contribution maximum for that tax year. For example, if you lose eligibility on July 1, you can contribute half of the contribution maximum for that tax year. The $1,000 catch-up contribution for HSA owners age 55 and over will also be pro-rated. If you lose eligibility you can continue to make contributions through the end of the tax year, as long as total contributions do not exceed the reduced maximum.

If you contribute more to the HSA than your pro-rated maximum, you must withdraw the excess contributions. Excess contributions are subject to income tax and penalty. However, if you withdraw excess contributions before you file income taxes for the year in which they occurred, you will not be required to pay the penalty. See your tax advisor for more information about applicable tax (and penalty) owed for excess HSA contributions.