Can my parents claim me as a dependent and I still have an HSA?

[maclittle95]

I lived with my parents for the first 6 months of the year (they paid for my health insurance provided by the college I went to), then moved out and started a new job and took insurance that gave me a HSA. My parents are claiming me as a dependent. I have contributed money every month from my paycheck to the HSA as a part of this plan, but upon researching it more, it seems that there is a conflict between having a HSA and being a dependent. What should I do/how should I file?

[MichaelDC · Accepted solution]

As a dependent on another tax return, you are not eligible to make contributions to a Health Savings Account (HSA). 

Since you are not eligible to contribute to the HSA, any contributions that you made are considered to be excess contributions and will be taxed.  The only way to avoid this taxation is to file your own return and not be claimed as a dependent on your parents’ return. 

The information reported on your 1099-SA must also be included on your personal return.  It cannot be included on your parents’ return since it was issued to you.

[edited 3/27/18 11:37 EST]

[maclittle95]

Thank you! Can I still do this even if I was sent a 1099-SA (ie, do I not report that at all)?

[MichaelDC]

There is an issue after all with your HSA contribution as one of the requirements is "You can’t be claimed as a dependent on someone else's 2017 tax return." Since you are not eligible to contribute to the HSA, any contributions that you made are considered to be excess contributions and will be taxed.  The only way to avoid this taxation is to file your own return and not be claimed as a dependent on your parents’ return. This would require your parents to amend their return IF they already filed.

The information reported on your 1099-SA must also be included on your personal return.  It cannot be included on your parents’ return since it was issued to you. Editing the original answer. Let me know if there's anything I can help you with this.

[e_pino20]

Can’t you file a return of excess contributions ?

[djdavidjones]

Sounds like based on what you shared, your parent's are in fact eligible to claim you as a dependent. So your two options are; file a Return of Excess Contribution Form or Tell your parents not to claim you and file your own tax returns. I'd suggest using TurboTax. They make it super easy and no this is not a paid endorsement.

[maglib]

[mention://98381179 [mention://98381179 @maclittle95]]  
You should discuss the dependent rules with your parents.  You said you moved out after 6 months, the dependent child rule requires you live at their home more than half the year which would be 7/3/17, did you move out before day 183?  Were you a full time student for at least 5 months of the year?  Even if a day in May, you would qualify for the 5 month rule.  The next question at hand is did you provide over half your own support costs   http://www.irs.gov/pub/irs-pdf/p501.pdf ?  It is not calculated by the number of months but total cost for the year, so you may still qualify to claim yourself.  

The real question is who should be claiming him in this "transition" year to adulthood. Bottom line is: you two have to agree on who is going to claim his exemption.  Using actual costs as determined by the IRS of whom paid over half the support of the individual.

[Carpe-Diem]

There is something fundamentally wrong with this tax code or interpretation of the tax code by TurboTax.  What the rule suggests is if someone is legitimately a dependent (>5 months residence and >50% support) and then they move out on their own, they aren't entitled to start an HSA.   In the latter half of the year, they no longer qualify for their parent's health plan (military anyways) and need to legitimately get and start their own health insurance.  We then penalize them for saving any money towards an HSA?  That just can't be right and makes no logical sense.   Can anyone with a tax background legitimately defend why we would not allow or encourage an HSA to be started in this circumstance?

[maglib]

the logic is sadly the tax law is based on annualization and dependent status...  it would be too complex to determine part year dependency.

[Carpe-Diem]

"Too complex" -- that's funny considering all the complexity already associated with health insurance and taxes.

[Dkullbom]

We have the turbo tax deluxe.  How do we complete the excess contribution form?  On our sons return.  We seem to be stuck in the loop the our son is being claimed on our return but also has an HSA. Our son was full time student until May20th.  He lived in our house all year in 2019 .  He was on my insurance through September 2019. He was eligible for his own insurance which is a HDHP with an HSA October 1st.

[Cooden]

Same here. TT deluxe. Smartcheck is not smart enough to allow for this scenario where child was a student, covered by parent's family plan, graduated in May, started work in 2nd half of the year and does the RIGHT thing to set up an HSA. Even if the child is willing to pay excess tax or withdraw that amount for that half year, TT has no way to handle this, and gets stuck in the endless loop of trying to auto-fill an 8889-T HSA form (bc of the W2 info) then declaring that's an error you can't have an HSA.  Would be nice if TT released a bug fix update quickly to simply override this somehow.  Meantime, trying to figure out how to do this through TT's manual forms. If can't get far enough with that, may have to skip TT and have child fill out taxes online directly w IRS.

[KrisD15]

If the child is claimed as a dependent for tax year 2019, and covered by a health insurance policy that is not high deductible (during any of 2019), an HSA cannot be utilized. 

Rules for HSA

[Cooden]

Thanks. That helps! I also found a couple of other discussion items that helped resolve the issues (and gave us full understanding) - and, better yet, we were able to get through the TT errors and complete the e-filing today.

More info (in addition to the helpful link from KrisD15):

https://ttlc.intuit.com/community/taxes/discussion/errors-on-8889-t-when-a-dependant/00/751910

How to get past the TT smartcheck errors:

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/being-claimed-as-dependent-with-...

[FLcaorlinagirl]

I have this same situation with my daughter.  She started working late in the year and unknowingly signed up for the HSA.  She only contributed $1400 to the HSA and I stand to lose much more by not claiming her as my dependent (even though I provided fully for her care Jan - Aug of 2022 while she was a full-time student.  I continued to provide for her financially through the end of the calendar year as she was still in school part-time while working.  We are stumped in TurboTax as to how to address this (pay the taxes on the excess contributions).  There is a worksheet 5329, I believe, that is asking her to select Self Only, Family or None for each month of 2022 that she was enrolled in a HDHP.  Prior to August she was on my plan, but selecting None doesn't work and it keeps pointing us back to that form for an error.

HELP!