Form 8889 line 1, "Check the box to indicate your coverage under a HDHP during 2024. If I don't pick either "Self-only" or "Family" the TurboTax review gives an error message.
Yes, this error message is created because TurboTax doesn't understand why you have an 8889 when you have no HDHP coverage. Of course. yours is a perfectly understandable (and common) case.
Since you told TurboTax in the HSA interview that you did not have any HDHP coverage for 2024 (correct), if, in the Review when you are asked to enter on line 1 either Self or Family, just enter Self. Because you have already indicated no HDHP coverage, all the numbers in the 8889 will be correct, and this will let you get past this impasse in the Review.
Since Medicare isn't a HDHP, though I can use the HSA to pay medicare premiums and deductibles, I am concerned picking either Self-only or Family may trigger an audit.
The IRS may wonder why you chose Self-only coverage and then showed zero for your annual HSA contribution limit, but I have not heard of them doing this. The worst case is that they write you a letter wondering why this is the case. If they ever do this (unlikely), just explain that this was required to get around an issue in your tax software, but the company states that all the calculations are correct.
Also, Form 8889 line 2 shows the Excess amount as "HSA contributions made in 2024" which isn't correct either. Since I am on Medicare and my dependent is in HDHP COBRA, we can't make HSA contributions in 2023 or 2024. What should I do? The IRS instructions don't address this and TurboTax online help and the pop-up explanations within the software package aren't addressing these.
Actually, the line 2 amount is correct. Excess HSA carryovers from previous years are carried over to the current year to see if they can be used as a personal contribution and therefore "used up".
Your issue is that you will never be able to use up the carryover, because you will never be free of conflicting coverage (i.e., Medicare).
The only remedy left to you is to
1. Take a distribution (i.e., call your HSA custodian, or maybe look at their website) for $100.
2. Enter the resulting 1099-SA into TurboTax (at this point , in your 2025 return) and tell TurboTax that it was NOT for qualified medical expenses.
3. This will add the $100 to Other Income and also add a 20% penalty to your 1040.
4. This will also remove the carryover for good.
Please note that the 6% penalty on the carryover is the LESSER of the carryover amount OR the value in your HSA at the end of the tax year. So when your HSA values drops to zero, you will no longer be penalized (although TurboTax will still keep trying to add the 8889). So you will want to add on your fingers whether or not it is worth it to make the distribution. In your case, it probably is, if you have a lot in your HSA, and don't want to mess with the 8889 on future returns.
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