Form 8889-T Line 18 Smart Worksheet for HSA distributions for medical expenses when no longer on an HDHP

[sealpodmama]

We had an HDHP and HSA for several years but switched to a non-HDHP for the entire 2019 year.  We had a balance in the HSA from previous years and used distributions for qualified medical expenses in 2019.

Turbotax questions insisted that we must have an HDHP to have an HSA.  That is not true.  We must have an HDHP to make contributions the HSA, but we are permitted to take distributions for qualifying expenses after switching to a different insurance plan.

The Line 14 Smart Worksheet looks correct - has the gross distribution we took in 2019.

I'm not clear about Part III though.  We did not maintain HDHP in 2019, but we did not contribute to an HSA, so there should not be any issue.  On Line 18 Smart Worksheet, I see the total contribution we made in 2018 (there was no excess contribution), all boxes are checked for family on qualified HDHP in 2018, but Turbotax will not permit me to enter a number into C: "Total maximum allowable contribution for 2018."  It is blank.  I believe that number should be $6900 which was the maximum allowed for families in 2018. 

Is it ok that C stays blank?  Lines 18-21 are also blank.

[BillM223 · Accepted solution]

"We must have an HDHP to make contributions the HSA, but we are permitted to take distributions for qualifying expenses after switching to a different insurance plan."

You are correct in this, and questions that state otherwise are mistaken.

As for the whole line 18 situation, what TurboTax is trying to do is ascertain if you used the "last-month" rule in 2018 (yes, 2018). This rule allows you to use the full annual HSA contribution in a year, even if you did not have HDHP coverage all year.

In your case, it sounds like you had HDHP coverage all year in 2018, so the last-month rule doesn't apply to you.

When you answered that you had HDHP coverage for every month in the Line 18 Smart Worksheet (you did, right?), then TurboTax should see that the last-month rule does not apply. 

I don't know why line C is blank, except that perhaps TurboTax lost interest when it saw that the last-month rule didn't apply. 

However, it does not matter. The fact that line 21 is blank means that you did not get penalized for breaking the last-month rule. Besides, the "smart worksheets" don't get sent to the IRS, just the form itself. So all the IRS will see are lines 18-21 - which means that you are OK.