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HSA, Medicare and the younger spouse

Home Tax Reduction HSA, Medicare and the younger spouse

  • Avatar walter 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1
    Joined: 06/12/2019

    I am an independent, structured as a pass through LLC.  I occasionally hire my spouse to handle year end bookkeeping and tax preparation, office management and organization in for which she is paid W2 wages with full benefits including 401k, etc.  All appropriate FICA and Medicare taxes are withheld and paid, and her income is reported on our personal tax return as wages.

    I, as a sole proprietorship, file as a pass through, disregarded entity on Schedule C.  This has worked out well for us.

    We have had an HSA eligible insurance plan for several years, originally an O-care plan, and now an off exchange association health plan courtesy of our state medical society.  (Everyone should lobby their state medical societies for this!)  This is a spouse/spouse plan.

    We contributed our faithful family HSA funds each year $8k this year, recorded our medical expenses and paid them out of current funds and have a fair amount of tax free withdrawals coming against the previously paid and documented medical expenses and let the HSA grow.

    Now comes the new rub:  Come next summer, I will be eligible for Medicare.  I will have to sign up for Medicare on my 65th birthday, and I am no longer eligible to contribute to the HSA.  My spouse will continue on the association group HSA eligible plan, and I will convert to supplement insurance.

    My original plan was to open a new HSA in my wife’s name, and contribute the individual amount to that HSA every year until she is eligible for Medicare, some years down the road, at which time, I will be in the RMD group.  This would allow me to contribute $3500 plus $1000 catch up to her side, each year until she times out too.

    I have read a variety of internet thingies, which I’m not sure are reliable that have said since there is a family health insurance policy, she can contribute the full $8k to her account, since she has an HSA plan, and I am the spouse, even though I personally am not eligible as a Medicare enrollee.  I find this odd, but if that’s what the law is, then I will cheerfully have her fund the full $8k each year, while mine is not eligible for additional contributions.

    I’m pretty sure we can do the $4500. Does anyone have any thoughts on the ability to contribute the full family amount, as we both have insurance, but only one is HSA?

    #221383 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8114
    Joined: 01/09/2016

    My thoughts are that no, she does not qualify for and cannot contribute the family plan limits, regardless of the internet thingies. If @spiritrider, et al can cough up a code section allowing this, I will gladly eat crow and advise my clients regarding this surprising change of events forthwith. Of course, Medicare is a beautiful thing, affording participants some serious savings.

    Btw, do any of the internet thingies reference any IRS code section thingies? Would love to see.

    Welcome to the forum – we’re glad to have you on board!

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #221392 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 3505
    Joined: 01/14/2017

    Your wife would qualify for a single HSA contribution plus catch up for age. She would not be able to contribute to the family amount since you have Medicare and are covered under that. See Pub 969.

    #221401 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1903
    Joined: 02/01/2016
    Earnest refinancing bonus

    Some HSA nuances.

    As has been pointed out, your wife can likely only make contributions up to the individual contribution limit plus the catch-up contribution if/when the year she turns age 55. The determination of the self-only or the family contribution limit is based on HDHP coverage and not family status.

    However, Medicare enrollment affects HSA eligibility, but does not prevent HDHP coverage. While it is not likely cost effective in your case and in fact many cases. If you were covered under an HDHP family plan by your wife in addition to Medicare, she could make the contributions up to family contribution limit plus the catch-up contribution if/when the year she turns age 55.

    Health insurance premiums are not normally HSA qualified medical expenses. However, there is an exception when the HSA account owner is >= age 65. In this case any health insurance policies covering the HSA account owner, their spouse and their dependents are HSA qualified medical expenses. Clarifying: It is the age of account owner that matters, not the age of the spouse and/or dependent. Note: Medicare Supplement premiums are never HSA qualified medical expenses.

    The self-employed health insurance deduction can be claimed for Medicare premiums of the HSA account owner and their spouse. In your case when your wife enrolls in Medicare. However, in order for regular health insurance premiums to qualify for the self-employed health insurance deduction, the policy must be in the name of the business or the business owner. It is very difficult these days to get a cost-effective health insurance policy for a single employee in the name of the business.

    For @jfoxcpacfp the relevant references are 26 code section 223 of the IRC and IRS notices (2004-2, 2004-50 and 2008-59). This IRS has never issued any regulations for section 223.

    #221459 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8114
    Joined: 01/09/2016

    Some HSA nuances.

    As has been pointed out, your wife can likely only make contributions up to the individual contribution limit plus the catch-up contribution if/when the year she turns age 55. The determination of the self-only or the family contribution limit is based on HDHP coverage and not family status.

    However, Medicare enrollment affects HSA eligibility, but does not prevent HDHP coverage. While it is not likely cost effective in your case and in fact many cases. If you were covered under an HDHP family plan by your wife in addition to Medicare, she could make the contributions up to family contribution limit plus the catch-up contribution if/when the year she turns age 55.

    Health insurance premiums are not normally HSA qualified medical expenses. However, there is an exception when the HSA account owner is >= age 65. In this case any health insurance policies covering the HSA account owner, their spouse and their dependents are HSA qualified medical expenses. Clarifying: It is the age of account owner that matters, not the age of the spouse and/or dependent. Note: Medicare Supplement premiums are never HSA qualified medical expenses.

    The self-employed health insurance deduction can be claimed for Medicare premiums of the HSA account owner and their spouse. In your case when your wife enrolls in Medicare. However, in order for regular health insurance premiums to qualify for the self-employed health insurance deduction, the policy must be in the name of the business or the business owner. It is very difficult these days to get a cost-effective health insurance policy for a single employee in the name of the business.

    For @jfoxcpacfp the relevant references are 26 code section 223 of the IRC and IRS notices (2004-2, 2004-50 and 2008-59). This IRS has never issued any regulations for section 223.

    Click to expand…

    OMG, you are too much.😳

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #221564 Reply

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