HSA Tax Checklist

NJ does not recognize HSAs for state income tax purposes. This means contributions are not deductible and HSA contributions are included in your NJ wages (W-2 Box 16). Because other federal and New Jersey differences can move the comparison in either direction, reconcile Box 16 to federal Box 1 item by item rather than assuming the NJ figure is always the higher one.

Your HSA contribution limit is zero for Medicare-enrolled months (Part A, B, or D), including retroactive coverage. You can still make timely contributions for earlier eligible months, subject to the applicable annual limit and contribution deadline. That is a contribution rule, and it is separate from what the account can reimburse; Medicare enrollment can also begin before age 65 through disability. You can still use existing HSA funds tax-free for qualified medical expenses, and once the account beneficiary is age 65 or older, Medicare Part A, B, C, and D premiums are qualified expenses (Medigap premiums are not) - see Pub. 969.

If you take an HSA distribution for non-qualified expenses, you owe ordinary income tax plus a 20% additional penalty under IRC Section 223(f)(4)(A). The penalty does not apply after age 65, for disability, or upon death - after age 65, the HSA functions like a Traditional IRA for non-medical use (income tax only, no penalty).