What do you do when an employee is Medicare-eligible but they're also contributing to the company-sponsored health savings account (HSA)?  Check out the Q&A below for more information.

Question

If an employee turns age 65 this month and enrolls in Medicare Part A, can he still receive/contribute funds into an HSA until the end of the year?

Answer

The employee may contribute to his HSA only while he meets all four eligibility criteria -- is enrolled in a qualifying High Deductible Health Plan (HDHP), does not have any disqualifying non-HDHP coverage, is not enrolled in Medicare, and cannot be claimed as another taxpayer's tax dependent. Eligibility is determined on a monthly basis, so contributions cannot be made for a particular month unless he meets all the eligibility criteria that month.

The tax law governing HSAs sets an annual limit on maximum contributions. For 2018, the annual limit is $3,450 (if enrolled for single HDHP coverage) or $6,900 (if enrolled for family HDHP coverage). For persons age 55 and older, an additional catch-up contribution of $1,000 is allowed. If not eligible for all 12 months of the calendar year, the annual limit is pro-rated. For instance, if the employee was eligible each month from January through May, then became covered for Medicare on June 1, his maximum allowable HSA contribution for 2018 would be 5/12ths of the usual annual limit.

Employees participating in HSAs are encouraged to review their own situation with their personal tax advisor.

This blog is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.