@dill4fam wrote:
Right, it’s an eligible HSA expense because of the income exception, not because it would have been a Schedule A deduction (as the adult kids were not your QC or QR tax dependent). Semantics.
There's a lot of weird stuff in this post. Let's clarify.
1. The original post was from 2018 even though it is dated 2019. @AF6336 posted in 2020 and @dill4fam replied in late 2021, long after the thread should have been dead and buried.
2. The rules for qualified HSA contributions are the same as the rules for medical expense deductions on schedule A. You can use HSA funds for expenses for yourself, your spouse, and your dependents. You can also use HSA funds for someone who could have been your dependent except they were disqualified by income or marital status. However, this means that you still must provide more than half your child's total financial support—this is one of the other important tests for claiming a person as a qualifying relative dependent.
Remember there are two types of dependents. For qualifying child dependent, they are your dependent if they are under age 19, or under age 24 while being a full time student, and they live with you, and they don't provide more than half their own support. Their income is not disqualifying, unless the provide more than half their own support, in which case their medical expenses won't be HSA eligible.
For qualifying relative dependent, this will apply to a child over age 19 or 24, as long as the taxpayer provides more than half the child's support and the child has less than the income limit ($4300 for 2021). Here, if the child is disqualified from being a tax dependent by their income, their medical expenses are still HSA eligible as long as the parent provides more than half their support. If the parent does not provide more than half their support, their expenses are not HSA eligible.
3. @AF6336 said "IRS advised me that my 20 year old child is eligible to be covered by my health insur till age 26, but I cannot contribute separate HSA funds for him because he is over 19 and not in college full time."
This is very confusing. The taxpayer's contributions are only limited by the type of HDHP insurance they have—family or single. The age of their kids doesn't matter. It is withdrawals where the child's status comes into play. @AF6336 could use HSA funds to pay their child's (over 19, not a student) co-pays as long as they provide more than half their child's total financial support.
4. Finally, there is a huge benefit that has not been discussed here. If the child can't be claimed as a tax dependent, but is covered by a qualifying HDHP plan (their parents' plan), the CHILD can open an HSA in their own name and make tax-deductible contributions. The child can open the HSA at any participating bank, it does not have to be through their or their parent's employer. This means that a child between the ages of 19 and 25, who has a job making more than $4300 (but is still covered by their parent's family HDHP), can open an HSA and make tax-deductible contributions, then withdraw those contributions to pay their own medical expenses (even if the parents also have an HSA). This will result in a tax savings to the child as long as the child's income is more than $12,400.
