Hello, my husband and I are both over 55 years old and my husband opened a family HSA account in November of 2020. He contributed $887 in 2020 and I did not contribute anything. Our 2021 Turbo Tax is stating that the $887 which my husband contributed in 2020 is now taxable "Additional Income" for 2021 because of the "last month rule". He turned 65 and went on Medicare in August of 2021 and was no longer eligible. I understand that because of the "last month rule" he would have had to maintain eligibility to his family HSA account for all of 2021 in order to be eligible to contribute the maximum amount in 2020. However, he only contributed $887.
To find out why he was being taxed on the $887, I opened up our 2021 and 2020 8889 forms with the worksheets. I saw on our 2020 forms that Turbo Tax had automatically allocated all $7100 of our maximum joint contribution amount to my name, leaving only the $1000 catch-up amount in my husband's name. And, Turbo Tax had carried this information forward into our 2021 8889 worksheet. This should not have been an issue because $887 is still within the $1000 catch-up amount provided for my husband. However, to test out how this $7100 allocation to me affects our taxes this year, I opened our 2021 8889 forms. Under the category of my husband's contribution amount it asks how much was allocated to his spouse in 2020. When I changed the amount from $7100 to $450, Turbo Tax decreased the amount of federal tax due (for 2021) by $335. I cannot figure why this is happening, but if the IRS allows us to allocate contributions between spouses (in a family HSA account) any way we wish, why can't I amend our 2020 8889 forms to show that only $450 in contributions was allocated to me? I tried to amend the actual 2020 8889 forms on Turbo Tax and every change I make turns red and indicates an "error".
