Enroll in Medicare at 65 While Still Working and Your HSA Deposits Turn Into a 6% Penalty

A 66-year-old engineer who is still on his employer’s high-deductible plan files for Social Security to start the monthly checks. The Social Security Administration automatically signs him up for Medicare Part A, and because he enrolled after 65, that Part A coverage backdates up to six months. The HSA contributions he and his employer made during those six months are now excess, and the IRS can assess a 6% excise tax on them for every year they remain uncorrected.

This is a narrow trap that hits one specific group: workers who stay on an HSA-eligible plan past 65 and then either claim Social Security or enroll in any part of Medicare without first turning off their payroll contributions.

The Rule That Blindsides Late-Career Workers

Medicare and HSA contributions cannot coexist. The day any part of Medicare turns on, including premium-free Part A, new HSA deposits become excess contributions. The account itself is fine. You can keep spending the balance on qualified medical expenses, including Medicare Part B and Part D premiums, Medicare Advantage premiums, and deductibles. Only new money going in is barred.

The catch is the retroactive start date. A worker who delays Medicare past 65 and enrolls later, or who files for Social Security at any age past 65, gets Part A backdated by up to six months (but never earlier than the month they turned 65). Filing for Social Security forces the issue: you cannot collect a Social Security check and refuse Part A. This is the mechanic that catches people, because the retroactive window reaches back into months when payroll was still funneling money into the HSA on a pre-tax basis.

What the 6% Penalty Actually Costs

Consider the 2026 contribution limits. The maximum HSA contribution is $8,750 for family coverage and $4,400 for self-only coverage. A worker contributing steadily throughout the year who later triggers a six-month retroactive Part A enrollment could find that roughly half of those contributions are now considered excess. On family coverage, that could mean about $4,375 in excess contributions, resulting in an annual excise tax of roughly $263. For someone with self-only coverage, the annual penalty would be closer to $132. Because the 6% excise tax applies for each year the excess remains in the account, a relatively small mistake can become an ongoing expense if left unresolved.

Fortunately, excess HSA contributions can often be corrected before they become a long-term problem. In many cases, withdrawing the excess contribution along with any earnings attributable to it before the applicable tax-filing deadline will prevent the recurring 6% excise tax from applying. The exact tax treatment depends on the timing of the correction and the individual’s circumstances, which is why anyone who discovers a retroactive Part A enrollment should contact their HSA custodian, tax professional, or financial adviser as soon as possible rather than allowing the excess contribution to remain in the account.

Connecting Medicare to Social Security Timing

The Social Security connection is the part many workers overlook. For someone who continues working past age 65, claiming Social Security can seem appealing, especially after a cost-of-living adjustment increases monthly benefits. What many people do not realize is that applying for Social Security also triggers enrollment in premium-free Medicare Part A. There is no option to receive Social Security benefits while declining Part A coverage. As a result, workers who want to continue making HSA contributions need to think carefully before claiming Social Security, because Medicare eligibility and HSA contributions generally cannot overlap.

What to Do

• Stop HSA contributions at least six months before you apply for Medicare or Social Security. That covers the entire retroactive Part A window and ends the exposure cleanly. Tell your employer payroll, not just your HSA custodian.
• If you are already trapped, withdraw the excess plus earnings before your tax filing deadline (including extensions) for the year the contributions were made. That cancels the 6% excise tax for that year. After the deadline, the only way to stop the meter is to pull the excess out and pay the 6% for every year it sat.
• Keep spending the HSA. Use the balance for Part B premiums ($185 in 2025 figures referenced by CMS), Part D premiums, Medicare Advantage premiums, dental, vision, and hearing. The contribution door closes; the spending door stays open for life.

Figures reflect 2026 plan-year rules. Sources: CMS 2026 Medicare Parts A & B Premiums and Deductibles; IRS Rev. Proc. 2025-19 (2026 HSA limits); IRS Publication 969.