Retroactive Medicare enrollment upon claiming Social Security imposes a 6% annual excise tax on excess HSA contributions.
Filing for Social Security benefits automatically enrolls individuals in Medicare Part A, with coverage backdated up to six months. This retroactive enrollment converts active Health Savings Account (HSA) contributions into excess contributions, triggering IRS penalties.
The IRS imposes a 6% excise tax on excess HSA contributions for each year they remain in the account. To avoid penalties, HSA contributions must cease at least six months before applying for Social Security or Medicare. The rule applies automatically, with no opt-out provision.
The issue arises for individuals working past age 65 who continue funding HSAs. While this setup is common, the penalty is triggered the moment Social Security benefits are claimed, not when Medicare eligibility begins.