Open TurboTax

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

cancel
Showing results for 
Search instead for 
Did you mean: 
TaxGuyTom
Level 2

Dependent and parent with HDHP's. Max contribution?

My (non-dependent daughter was covered under my coverage in a High Deductible Health Plan for the entirety of 2019.  In July of 2019 (.5 year) she was able to secure her own insurance.  As my cost to cover my daughter was fairly negligible, I elected to keep family level coverage.  While I can no longer claim her as a dependent, I should be able to contribute the family max. (plus $1K for the old guy provision) for 2019?

 

That's the first question.

 

Second question is, can my daughter contribute .5 of the single contribution (as she was covered July 1, 2019)?  

7 Replies
BillM223
Employee Tax Expert

Dependent and parent with HDHP's. Max contribution?

Let's address the first question first. You say that you elected to keep your Family HDHP coverage when your daughter got her own policy on July 1, 2019. 

 

A Family policy is any HDHP policy in which the taxpayer and at least one other person is covered, whether that other person is a spouse or a dependent. 

 

However, the way you phrased this issue makes me wonder if you have a spouse. If the result of your daughter leaving was that you were the only person on the policy, then you should had returned to a Single HDHP policy. If so, you would claim Family coverage for January through June and Single coverage from July to December.

 

If, on the other hand, you have a spouse or at least one other dependent, then you could retain the Family HDHP policy. If this is the case, then you are permitted to use the annual Family HSA contribution limit for an HSA, which is $7,000 this year (add $1,000 if you are 55 or older, so $8,000 for you).

 

As for the second question, your daughter began her own HDHP coverage on July 1,2019 if I understood you correctly. She evidently has a Single HDHP policy. If she still had HDHP coverage on December 1, 2019, then the "last-month rule" allows her to use the full annual HSA contribution limit for a Single policy, which is $3,500 in tax year 2019. 

 

The only catch to the last-month rule is that she has to stay under HDHP coverage for the "testing period", which is all of 2020. If she loses HDHP coverage in 2020, then she will report that in early 2021 when she does her 2020 tax return.

 

Note that this assumes that your daughter has her own HSA, created on July 1, 2019 or shortly thereafter.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
TaxGuyTom
Level 2

Dependent and parent with HDHP's. Max contribution?

Thanks for your comments:

 

With regard to "If the result of your daughter leaving was that you were the only person on the policy, then you should had returned to a Single HDHP policy".  

 

I am a single parent, but I retained family coverage under my employers plan.   Your "should" is noteworthy.  I retained my family coverage with my daughter (while she secured individual) coverage with her new employer so I could contribute the max to my HSA.

 

Was this an error?

 

Secondly, the core issue of the second question is, can a child under 26 with two HDHP's be a qualified under a family plan (ib this case mine), while contributing to her own HSA account?  If so, she would start a HSA prior to the 2019 tax filing deadline.

 

Thanks again.

BillM223
Employee Tax Expert

Dependent and parent with HDHP's. Max contribution?

The IRS defines "Family HDHP coverage is HDHP coverage for an eligible individual and at least one other individual (whether or not that individual is an eligible individual)." (see page 4 of Publication 969).

 

What you are telling me is that you are paying the higher premium for a Family plan by keeping your daughter on your policy, even while your daughter is paying her own HDHP premium.

 

I don't see that there is any conflict here in terms of HSA contributions - since both coverages are HDHP plans, there is no disqualifying coverage for your daughter.

 

Note that, of course, you know have, in essence, primary insurance coverage and secondary insurance coverage, not simultaneous coverage. That is, you now have two deductibles that you two have to satisfy, unless you make a point of making all claims against only one policy. This is why most taxpayers would have changed to Single coverage.

 

If I am not mistaken, your daughter must have been less than 26 years of age in 2019. Otherwise, if she was not your dependent, I don't see how she could be added to your insurance. Correct? This was a function of the Affordable Care Act, that you could keep children on your health insurance policy up to age 26, even if they were no longer able to be claimed as a dependent.

 

Eventually, this means that you will have to drop her off your policy, right?

 

In the meantime, the example that the IRS gives under step 4 on page 4 of the instructions for form 8889 (note, this is for 2018, but so far as I can see, these rules have not changed) implies that your daughter can have a separate HSA contribution limit once she has her own HSA. 

 

OK, your daughter who is not your dependent got her own HDHP coverage starting July 1, 2019. Now the question is when she got her HSA.

 

She can make contributions in early 2020 (before the filing deadline) towards her HSA for last year, because she was covered under an HDHP policy all year. In terms of her own HSA contribution limit, yes, ordinarily, she would be limited to 1/2 of the annual HSA contribution limit for a Single policy ($1,700, which is 1/2 of $3,400), but she is able to invoke the "last-month rule". 

 

The last-month rule allows a taxpayer to use the full annual HSA contribution limit, so long as the taxpayer has HDHP coverage on the last month of the year (that is, on December 1st). Thus, your daughter's limit for 2019 is $3,400. The only catch is - as noted above - that she will have to stay under HDHP coverage for all of 2020.

 

As you realize, she can contribute to her HSA in 2019 up until the due date of the return - even though her HSA did not exist yet, because she did have HDHP coverage).

 

However, she cannot reimburse herself for any medical expenses that she incurred prior to the creation of her HSA. Thus if she did not create the HSA until November 1, 2019 (made-up date), she could not reimburse herself from her HSA for any expenses that she had incurred prior to that date.

 

OK, I apologize for the lengthy response, but this is an unusual case that the IRS does not seem to have specifically addressed, and it is caused by the HSA code (Section 223 of the Tax Code) being adopted well before the Affordable Care Act, which changed the rules to allow children who are not dependents to be still carried on your health insurance policy until age 26.

 

I trust that this all makes sense. 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
TaxGuyTom
Level 2

Dependent and parent with HDHP's. Max contribution?

Your comments are very helpful.  Especially, the last year contribution level.  BTW, my daughter turned 26 last November, so this is a one year instance.  

 

Thanks for your input!

BillM223
Employee Tax Expert

Dependent and parent with HDHP's. Max contribution?

Your daughter turned 26 in November 2019? Was your insurance company aware of that? Did they still allow her to be on your policy?

 

I am thinking that they should have converted you to Single HDHP coverage (perhaps they did not get around to it immediately). In any case, if in December, you no longer had another person on your HDHP policy, then you no longer had Family coverage, which means that you needed to report the last month as Single coverage in the HSA interview in TurboTax.

 

This would have the effect of reducing your annual HSA contribution limit somewhat for 2019 (eleven months at Family and one at Single).

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
TaxGuyTom
Level 2

Dependent and parent with HDHP's. Max contribution?

Sorry for the confusion.  My daughter turned 25 in 2019.

BillM223
Employee Tax Expert

Dependent and parent with HDHP's. Max contribution?

Good...well, Happy Birthday then!

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

About Community

Learn about taxes, budgeting, saving, borrowing, reducing debt, investing, and planning for retirement.

3.48m
Members

2.6m
Discussions

Manage cookies
v