Seattle Logged More Than 9,000 Layoff Notices. The 67-Year-Old Who Enrolled in Medicare Learned Part A Reached Back Six Months Into His HSA

A 67-year-old manager in Redmond collects his last paycheck at the end of August 2026, one more casualty of the region’s layoff wave. In September he signs up for Medicare. He feels sure his Health Savings Account (HSA) is clean because his payroll contributions stopped the day the job ended. But then his Part A start date arrives in the mail: March 1. Six months of HSA deposits he made while still employed are now excess contributions. HSA contributions and Medicare Part A benefits should not overlap but they did.

Regional layoffs set up this situation. Roughly 9,000 people lost their jobs in tech in the Seattle area over the past 12 months, KUOW reported in March. Tech employer Microsoft (NASDAQ:MSFT | MSFT Price Prediction) would be responsible for several hundred of those layoffs, including in Redmond and the Puget Sound region, as part of a broader restructuring announced in the summer.

The national picture looks calmer. Initial jobless claims came in at 197,000 for the week ending Sept. 26, and unemployment stood at 4.2%. Seattle’s job losses are concentrated, and so is the trap, which catches workers who stayed on an employer high-deductible plan past 65 and kept putting money into an HSA.

How Part A Reaches Back Six Months

Sign up for Medicare after 65 and Part A can start retroactively for up to six months, but never before age 65. If you apply in September, coverage starts in March. At 67, our worker gets the full six months.

HSA eligibility ends with the first month of Medicare coverage. The IRS counts every contribution for March forward as excess, and that includes contributions from employers. He paid into the account month by month. Medicare then moved his coverage start date back to a time when he was still working.

What the Excess Costs in Dollars

Assume he was on pace to contribute the 2026 self-only maximum of $4,400 plus the $1,000 catch-up for savers 55 and older, through equal monthly payroll deductions. At $450 a month, the six backdated months detailed above leave $2,700 in excess contributions. Someone with family coverage on pace for the $8,750 limit plus catch-up would have $4,875 in excess.

If the money stays in the account, the IRS charges a recurring 6% annual excise tax on it. That comes to $162 a year in the self-only example and $292.50 in the family example, every year until he fixes it. He also loses the tax break on the excess: contributions that were excluded from income may have to be added back.

Laid-off workers get hit hardest because their attention is elsewhere, as severance, COBRA elections and a job search fill the calendar. None of that paperwork mentions that Medicare can backdate coverage into months when the HSA was still getting deposits.

One taxpayer laid out the consequences on a TurboTax community forum. The notice arrived on April 16, 2026, showing Medicare coverage retroactive to September 2025, after the poster had already filed a 2025 return showing $9,500 in HSA contributions. The revised limit came to $6,367, so the poster asked the custodian to return $3,183 and amend the return.

Who Can Skip the Fix

You owe nothing here if your HSA contributions stayed within the limit allowed before your Medicare coverage began. For someone enrolling more than six months after 65, that generally means stopping contributions at least six months before the month of the Medicare application. The same warning applies if you start Social Security after 65, because Part A can reach back six months there too.

Three Steps to Take Before Your Filing Deadline

1. Pull three dates. Your Medicare application month is on your Social Security confirmation. Your Part A effective date is on your Medicare card. The date of your last HSA deposit, from you or your employer, is on your custodian statement and last pay slip. Once Medicare Part A reaches back to March, his HSA contribution limit for 2026 shrinks to the amount allowed for January and February; anything above that annual limit is excess.
2. Take action now. Request a removal of excess contributions. Ask your HSA custodian to send back the excess and its earnings before your tax filing deadline or extension deadline. That avoids the 6% tax. Report the earnings as income and file Form 8889 with the corrected limit. If you already filed, amend the return, as the forum poster did.
3. If you have not applied yet, stop contributions first. Stop all HSA deposits six months before you apply for Medicare or Social Security. A laid-off worker still on an HDHP through COBRA can time this to fall inside the eight-month Part B Special Enrollment Period. That window starts when the job or the employer coverage ends, whichever comes first, and COBRA does not extend it.

The layoff set one end date for the job. Part A set its own start date six months earlier, and that date determines which HSA dollars count as excess.

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