Had HDHP all year with Medicare Pt A in Nov and Dec.If I choose "None" on "type of HDHP coverage for each month of 2018" TT says my coverage lapsed. Do I mark Self Only?

[2018azres]

This section helps you figure how much you can contribute to your HSA (which you can't do while you are covered by any portion of Medicare).  I was covered by my HDHP all year--just didn't contribute to my HSA in Nov and Dec after I turned 65 and was on Medicare Part A.  All legal and appropriate. But TT is assuming I wasn't covered by my HDHP anymore--which isn't true. If I follow the instructions and say "None" the program correctly shows the limits of what I could contribute to the HSA but says my insurance coverage lapsed--which isn't true. If I ignore the instructions and check "Self Only", then I feel like I'm not truthfully saying that I was on a part of Medicare part of the year. No matter what, the program isn't letting me tell the whole story. I won't have a problem next year 'cause I'm changing insurance and won't be on a HDHP.

[BMcCalpin · Accepted solution]

You get this "lapse in coverage" message when you answer the question near the end of the HSA interview of "What type of High Deductible Health Plan (HDHP) did [name] have on December 1, 2017?"

This is a poorly worded question that really wants to know if you took advantage of the last-month rule in 2017. When you answered "Self" or "Family", then because you did not have HDHP coverage for every month in 2018 (because of Medicare), then the lapsed message is actually appropriate.

Why? Because if you had HDHP coverage on December 1, 2017, then you may have taken advantage of the last-month rule in 2017, which allows you to use the full annual HSA contribution limit for 2017, even if you weren't covered in every month of 2017. The catch of the last-month rule is that you have to stay under HDHP coverage for every month in 2018 (called the "testing period").

So the lapsed message is appropriate in your case. However, in the questions that follow, if TurboTax discovers that you had HDHP coverage in every month in 2017 (or if your contributions were less than the pro-rated amount for the limit if you did not use the last-month rule), then you didn't need the last-month rule, so you won't be penalized.

Please answer the questions, and you will have the correct result.

[BMcCalpin]

Yes, to be clear, if you had "Self" coverage on 12/1/2017, then answer "Self" to the 2017 question. As I said, if you had HDHP coverage for every month in 2017, in the end, you will not be penalized.

[2018azres]

Thanks for your response.  You confirmed my understanding that I would owe no penalty on my contributions to my HSA.  What still concerns me, however, is the terminology used by TT--specifically "lapsed". My HDHP coverage never lapsed. For purposes of accessing whether or not I was eligible to contribute to my HSA all year in 2018 I understand that the months I was on Medicare Pt A (while also covered by my HDHP) I was ineligible to do so. No problem.  I didn't.  But to characterize those months as having no coverage (and forcing me to check "No, the coverage ended for other reasons" to find out if I went on disablity for those months) is inaccurate and conflicts with the facts.  I wish TT could change their terminology and figure out a different way to ask the question.  I fear that TT is reporting that I didn't have health coverage for part of 2018.  Medicare Pt A only covers hospitalizations, not regular medical care. So my question now is...Is TT reporting that I did not have HDHP coverage for all of 2018 to the IRS?

[BMcCalpin]

The problem is that to be eligible to contribute to an HSA, you must have HDHP coverage, and not conflicting coverage. Medicare is a conflicting coverage. So even if you still have your HDHP coverage but also have Medicare in a given month, you have to answer on the IRS form 8889 (and in TurboTax) that you have "None" for HDHP coverage.

When TurboTax reports on the 8889 that you have "None" for HDHP coverage in a given month, it is literally correct - because the meaning according to the IRS is "either you have no HDHP coverage or you have HDHP coverage but also conflicting coverage". Look at <a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p969">https://www.irs.gov/publications/p969</a> and find "Qualifying for an HSA" to see the discussion about HDHP coverage.

This does not affect the Health Insurance part of the interview, where you indicated (correctly) that you had health insurance for the entire year.

[2018azres]

Wanted to follow up to your additional comment.  I finished my return after your response and as you said, the program gave the correct result.  The Health Insurance section still showed that I had coverage all year and the HSA form 8889 figured the correct amount that I could safely contribute to the account without penalty based on only 10 months of HDHP (without Medicare also) coverage.  And the return included no scary, though literally correct, terminology on the return itself.  So everything turned out well in the end.

Thanks for your detailed response to all my concerns regarding TT's handling of this section.