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rwsulli
Returning Member

ESRD and HDHP Family Plan with no lapse in coverage.

My wife had a kidney transplant which is covered under the ESRD Medicare, and they pay for her immunosuppressant drugs for three years, but that is all they pay for. She never had a lapse in her HDHP coverage and still has it for herself and the rest of our family. 

 

Why does Turbo Tax insist there was a lapse in coverage?

 

How should that situation be entered? 

5 Replies
JohnW152
Expert Alumni

ESRD and HDHP Family Plan with no lapse in coverage.

Your issue is with the question that asks "What type of High Deductible Health Plan did [name] have on December 1, 2019?" 

Unfortunately, the question does not clarify that it is only for a small group of taxpayers and that all other taxpayers should answer "NONE". 

NOTE: each spouse can have an HSA. The use of "you" below refers to whichever spouse's name was in the question above. 

This question is trying to determine if you utilized the "last-month" rule in 2019 (yes, 2019). The last-month rule lets you use the full annual HSA contribution limit if you had HDHP coverage on December 1, even if you were not covered by an HDHP for all of the year. 

However, the catch is that if you used the last-month rule, the IRS requires that you stay under HDHP coverage for all of the following year (2020).

 

***NOTE*** This question occurs on the taxpayer who does not have an HSA, so never had a chance to tell TurboTax in the HSA interview what their HDHP coverage was for 2020.

 

So, the fix is this: go back to the question (at the end of the HSA interview), and: 

  • If you had HDHP coverage for all of 2019, then enter NONE 
  • If you had no HDHP coverage for all of 2019, then enter NONE.
  • If you did not have an HSA in 2019, then enter NONE.
  • If you had an HSA in 2019 but did not contribute to it in 2019, then enter NONE. 

Only taxpayers who had their own HSA in 2019 AND who contributed to their own HSA in 2019 should answer “Family” or “Self” or “None” (which can be the right answer in some cases).

Opus 17
Level 15

ESRD and HDHP Family Plan with no lapse in coverage.

If your wife had health coverage in addition to the HDHP (ESRD Medicare?) then she is not eligible to contribute to an HSA.  You may be eligible to contribute to an HSA if you were covered by an HDHP, even if it was in your spouse‘s name. You may need to have an expert review the situation, or give us much more detail, to make sure that you are not going to get a nasty letter from the IRS later in the year.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
rwsulli
Returning Member

ESRD and HDHP Family Plan with no lapse in coverage.

Not really sure what the much more detail is. Wife is employed and covered by a HDHP from her employer. I am retired and covered under her plan. She had a kidney transplant in May, recovered and is back at work. No lapse of insurance coverage. The Medicare ESRD covered the transplant and her meds.

 

Turbo Tax keeps saying there was a lapse in coverage, where there was none. And why can we not contribute to our HSA, just because of a transplant? We have lots of other medications that we pay for that are not covered under the ESRD program. Seems like this is a bug in Turbo Tax.

rwsulli
Returning Member

ESRD and HDHP Family Plan with no lapse in coverage.

That "fix" of entering NONE for everything does not work. No questions about 2020 and wants you to withdraw all contributions made in 2020.

 

Opus 17
Level 15

ESRD and HDHP Family Plan with no lapse in coverage.


@rwsulli wrote:

Not really sure what the much more detail is. Wife is employed and covered by a HDHP from her employer. I am retired and covered under her plan. She had a kidney transplant in May, recovered and is back at work. No lapse of insurance coverage. The Medicare ESRD covered the transplant and her meds.

 

Turbo Tax keeps saying there was a lapse in coverage, where there was none. And why can we not contribute to our HSA, just because of a transplant? We have lots of other medications that we pay for that are not covered under the ESRD program. Seems like this is a bug in Turbo Tax.


Even if you have a qualifying HDHP, if you also have any other kind of medical insurance on top of the HDHP, you are ineligible to contribute to an HDHP.  That's simply how the law was written.  Having Medicare coverage disqualifies your wife from making any contributions to an HSA effective whenever the Medicare became effective.

 

"We" don't have an HSA, there is no "our" HSA.  An HSA is owned by one person only, similar to an IRA.  If you are covered by your spouse's HSA, you are allowed to contribute to an HSA in your own name, or your spouse can contribute to an HSA in her own name, but there are no joint accounts.

 

As I said, your wife's contributions to her HSA are limited for 2020 because she had other insurance coverage.   I don't know when the coverage started, you might know that.  I also don't know when the coverage ended -- if it is now continuous coverage, at least as far as her transplant is concerned, then she is forever ineligible from making new contributions.  That is something you will have to review with a Medicare specialist.  Your contributions to an HSA are not limited by your wife having secondary insurance coverage, so you may need to withdraw the money from your wife's account and deposit it as a new contribution to an account in your name.  (There are many banks that will allow you to open a private HSA, it doesn't have to be an employer-sponsored account.). However, be aware of the limitation on "other" medical coverage. As soon as you become eligible for Medicare yourself, your eligibility to contribute to an HSA ends. 

 

I don't have confidence you are answering the HDHP questions in the interview correctly.  The "lapse" issue is separate from the fact that your wife is disqualified by her Medicare coverage and her contributions will be limited for that reason.  Plus there is the issue that you need to remove the excess contributions from your wife's account and think about opening an account in your name to accept contributions, if you aren't covered by Medicare.  I really want to you get competent professional help this year.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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