My TurboTax rockstar friends,
I would love your insight into my "that's so 2020!" situation, below.
Facts:
- My COBRA for my former employer was scheduled to end late November 2020.
- I was interviewing for a new job Sept-Nov.
- Since I was not sure if I would have the new job+new job healthcare coverage by the time my COBRA coverage lapsed late November 2020, I started the application process for Marketplace coverage for the month of December 2020. I misinterpreted one of the income questions when I initially submitted my application for December 2020 coverage. I quickly realized my mistake and amended and re-submitted my application that same day.
- My mistake, even though I quickly corrected it, started the whole "automatic approval for Medicaid because of COVID-19" process with my state and county.
- I was offered and accepted the job(!!), which gave me HDHP+HSA healthcare coverage in November 2020, before my COBRA lapsed(!!).
- I received some Medicaid automatic approval letters from my local county, so I called the caseworker around Thanksgiving and let her know that I had full coverage (COBRA) and that I would soon start my new employer's full coverage without any gap, so I did not need, nor did I want Medicaid coverage. She asked me to email her that information when I received my first full paycheck, which I did today.
- I understand that the HSA's Last Month rule lets me contribute to my HSA up to the $7.1k max for 2020 if I had the HDHP plan as of 12/1/20. My employer made its $2k contribution in early December. I also read that a person who has active Medicaid insurance is ineligible for an HSA, so I emailed the caseworker today to confirm that my late November decline of Medicaid coverage "took" in the system and that I did not have coverage on 12/1/20. She wrote that my coverage is actually active in the system, but she would stop the coverage on 12/31/20. I spoke with her live, confirmed that I did decline Medicaid coverage in our late November phone call (she has that in her notes), but she said it was live in the system on 12/1/20 and it could not be undone in the system. She said that, because of COVID-19, folks were automatically approved and enrolled in Medicaid, whereas in normal years my enrollment would have been able to be stopped in a phone conversation.
So...I have a few questions:
- Will a letter from the caseworker (on local county letter, about the error, that I quickly notified her and declined Medicaid coverage, and that me having coverage on 12/1/20 was an error) "allow" me to contribute to my 2020 HSA up to the $7.1k limit, undoing the disqualifying factor that I technically had Medicaid coverage on 12/1/20?
- Or is there another reasonable remedy available that will still allow me to take advantage of the HSA "Last Month Rule" and contribute up to the $7.1k family max (less employer contributions)?
- If not, I assume that I would have to somehow get my employer to unwind its $2k contribution, as that would be deemed an excess contribution for 2020.
Thanks for your help and wisdom, my rockstar TurboTax friends!
NoviceTaxLearner
