Does having a HSA prevent my recent college graduate son from being our dependent?He met all requirements.His W2 has $48 box 12A code W. He had it 17 days 12/15-12/31/22

[cindy0213]

He started a new job and wasn't eligible for company health care until December 15. He was on my ACA coverage for the first half of 2022 then had his own ACA policy until he was eligible for company coverage.

[Spino]

No, not at all. Interesting question. It sounds like, though, that he may not be your dependent going forward. That happens, and I'm happy it does :-).

Actually our 32 y.o. son still lives with us, but he works, we charge him some rent (which we don't have to pay tax on since he's family and we don't have a formal contract,) and he takes his own exemption and pays his own taxes. For all of this I'm glad, not sad. Besides those deductions for dependents aren't all that large anyway.

[Opus 17]

It's the other way around.  If he is eligible to be claimed as a dependent (even if he does not want to be claimed) then he is not eligible to make HSA contributions.  

First question is, does he qualify as your dependent?  He can be claimed as a dependent by you if he was

• a full time student for at least 5 months (such as his final senior semester)
• he lived at home more than half the year, or was considered to "live at home" because college is usually considered a temporary absence
• he provided less than half his own financial support for the year.
• under age 24 as of 12/31/22.

The support and live at home test can be tricky for a senior, depending on how his tuition was paid (grants, loans in his name or by you) and whether he moved out to establish a separate home at some point in the year.

If he can't be claimed as a dependent, then no problem.  If he can be claimed as a dependent, he must answer "yes I can be claimed as a dependent" even if it is inconvenient to do so.  The $48 HSA contribution will be designed as an excess/not allowed contribution, and it will be subject to income tax plus a 20% penalty (not much in the grand scheme of things).  He can avoid the penalty and contacting the bank to request a "Return of excess contribution" before April 18.

For 2023, since he has a job and is not a student, he most likely won't be eligible to be claimed as a dependent so there won't be any issues with his HSA next year. 

[Spino]

@Opus 17 My understanding is that a shift happened during the year. He went from being a dependent to not being one, since the original poster stated clearly that he did meet the qualifications for being a dependent in 2022.

However, you make a good point. If he was being claimed as a dependent in 2022, and then took a new job with new insurance and the ability to open an HSA, is he prevented from funding it in 2022 because he is being claimed as a dependent for that year?

If so, perhaps you could direct us to the specific language governing HSAs that addresses this and also any necessary corrections that need to be made if it has already happened, because this sounds like an easy situation that could often arise when dependents are shifting to independence :-).

Thanks for your contributions!

[Opus 17]

@Spino 

Whether a person qualifies to be claimed as a dependent is judged based on all the factors for the whole year (and the original poster never said he was not a dependent.)  You can't be a dependent for half the year, you either are or you aren't, based on all the facts.  If the son can be claimed as a dependent on the parent's tax return for 2022, based on all the facts under consideration for 2022, then he is not eligible to contribute to an HSA.

The rules are in publication 969, specifically the bottom of page 3 and top of page 4 of the PDF version.

https://www.irs.gov/pub/irs-pdf/p969.pdf

The rules for handling excess HSA contributions are also in publication 969 and I described them.  He can leave the money in the HSA and pay a 20% penalty or he can withdraw the excess before the tax filing deadline of April 18.  A "return of excess contribution" is a special type of withdrawal, not a normal withdrawal, and the HSA bank may require separate paperwork. 

[Spino]

It sounds like they might not have processed your latest form yet, or maybe didn't properly record it.

You could follow up with them, but if this sort of thing remains a problem (4 w4s!), I would avoid it by getting your taxes withheld somewhere else or paying estimated taxes. After all, it's your time and your taxes, so you don't want to mess around with a system that's not working for you.

[Spino]

@cindy0213 There it is, Cindy, at the top of p 4 in publication 969, as @Opus 17 just pointed out.

Since you have apparently NOT filed yet, perhaps the simplest resolution is NOT to claim your son as a dependent in 2022. In that case, it appears to me his HSA is okay. (what do you think @Opus 17 ?)

Otherwise, his HSA is not okay, and to get things right, he would need to reverse the contribution for 2022 etc. This kind of thing happens with employers, as the person filling out the forms is often focused on other things. My son, for instance, has had trouble with excess contributions to 401k's both times he's switched employers (he's on his third job over the last 10 years.) Welcome to adulting, I guess....

My guess is that the IRS might not have a computer screening for this, so it might just drift on down the river if neglected, but then again, they might!

[Opus 17]

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@Spino wrote:

@cindy0213 There it is, Cindy, at the top of p 4 in publication 969, as @Opus 17 just pointed out.

Since you have apparently NOT filed yet, perhaps the simplest resolution is NOT to claim your son as a dependent in 2022. In that case, it appears to me his HSA is okay. (what do you think @Opus 17 ?)

No, please read publication 501 and the instructions to form 1040.

The taxpayer must check the box that "someone can claim you as a dependent" if they can be claimed, even if that person agrees not to claim them and even if they don't want to be claimed.  

In Turbotax, that box is implemented with a Yes/No question, "Can someone else claim you as a dependent."

Checking that box (Answering "yes") will disqualify the taxpayer from making HSA contributions (and a few other things).  The question is whether the son qualifies as a dependent this year (considering all relevant facts and circumtances).