HSA Deductions - Insurance premium while unemployed

Forum|Forum|4 years ago
February 8, 2022
1 reply
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Hello. I have a question about using an HSA to pay my health care insurance premium while unemployed.

It's pretty clear that it qualifies if the payment is paid while unemployed based on this:

"Health care coverage while receiving unemployment compensation under federal or state law"

My unemployment started December 9th and my premium was paid on 12/01/2021 for December 1-December 30th coverage so 22 days of the month I was paying for insurance premiums while unemployed. I was employed on the actual day of payment which was 12/01/2021.

Do you think I can prorate the amount of the insurance premium I used while I was receiving unemployment compensation so the 22 days? My opinion is "no" and that it is based on the payment date. But wanted to check with the community since it would be good to use my contributions which are tax free. But, it's hard to say. My sense is the spirit of the wording is only when the actual payment is made. I could argue that I paid 22 days of insurance premium while collecting unemployment so I should be able to use 22/31 of the insurance premium from my HSA. But, I like to do the right thing.

Thanks,

David

Not A Product Question

BillM223

Level 15

Probably not.

I have looked at Section 223 (the part of the Tax Code that established HSAs) and an IRS notice that had Q&As about HSAs. Notice 2004-2 says the following to your point:

"Q-27. Are health insurance premiums qualified medical expenses?

A-27. Generally, health insurance premiums are not qualified medical expenses except for the following: qualified long-term care insurance, COBRA health care continuation coverage, and health care coverage while an individual is receiving unemployment compensation." See IRS Notice 2004-2.

Unfortunately, the literal terminology is "while" you are receiving unemployment. The expense takes place at a point in time, and at the point in time in which you made the expense (paid for the insurance), you were not yet on unemployment (note, it doesn't matter to the IRS if you were still employed but whether you were receiving unemployment compensation).

I don't know how an IRS auditor would respond to your concept that you were on unemployment for most of the month during which the health insurance was active. But I don't see anything to support it.

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davidmarketingAuthor

Level 2

Thank you. I will skip it.

I called TurboTax and spoke with an advisor and they thought it would be ok to prorate. But, I think the spirit of the tax code is like you said, it's when the payment is made.

The auditor probably wouldn't understand my argument although I think it's a good one. On the other hand, if there was a prorated part, they probably would have a calculation for that like they do for the maximum you can contribute in a year.

Thanks!