- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Report Inappropriate Content
Get your taxes done using TurboTax
"1 - The $500 was an employer contribution toward a full year of coverage... so I guess technically it was for Dec 2021 through Nov 2022. "
I don't know what "full year of coverage" refers to. She is covered by her HDHP plan. Her HSA is an account (similar in some ways to an IRA) that she can use to help pay for qualified medical expenses not covered by her insurance.
So, her employer's contribution was not towards HDHP coverage, but towards her HSA, with a separate annual limit. HSA contributions are always limited on a calendar year basis.
"2 - She believes it was effective December 1st 2021 but again isn't covered under this plan any longer and doesn't have documentation. Is the start date still relevant since the $500 from her employer was for more than just December 2021."
The start date is absolutely relevant, because the coverage that you have on the first day of the month is the coverage you have for the month.
We will assume that it was effective December 1st because the employer made a contribution which the employer assumed was valid (it would not have been valid for 2021 had the start date been after December 1st).
If the employer made a mistake on the effective data of the insurance, then the employer should not have made the contribution. If the employer in this case would not have made the contribution (or would have withdrawn it in time), she would not have been subject to the penalty of the last-month rule (if you use the last-month rule in any given December to maximize your annual HSA contribution limit, you must stay under HDHP coverage for the next year). But all of this is dependent on the date on which her insurance was active.
"should select the option in TT that says all funds will be removed by April 18th?" No. This is when the difference between "withdrawn" and "distributed" becomes important. If you actually have excess HSA contributions, then you have the option to withdraw those excess contributions as excess contributions without penalty by the due date of the return. But distributing those dollars as medical expenses is not the same thing and doesn't count as a proper withdrawal.
Because there are no dollars left in the HSA, you cannot withdraw the excess contributions, so you must answer "no".
"Also, am I correct that she will pay 20% (for taxes not previously paid) on the excess amount applied in 2022?" 20% is the penalty she would pay if she took money out of the HSA to spend on something other than qualified medical expense. That hasn't happened here. If you think it has, please explain.
"Last, should the cost for December 2021 be eliminated somehow since the $500 was not all for Dec 2021?" What does "cost" mean here? Why do you say that the $500 was not all for Dec 2021? The $500 was for the HSA as part of the annual HSA contribution limit. I don't understand what you are saying here.
**Mark the post that answers your question by clicking on "Mark as Best Answer"