How to manage an HSA for self-employed w high-deductible marketplace plan

I'm not a tax specialist, just someone in a similar situation (self-employed, doing my own taxes as sole proprietor, with a high deductible marketplace plan and an HSA).   The last time I had this kind of plan was in 2017, I think, and my memory (and the reason I opted into it this year) was that contributions to the HSA are treated the same as contributions to my IRA: they don't reduce my total income but they DO reduce my taxable income.  (On the old 1040, IRA and HSA contributions ended up in that bottom section on page 1, and thus were the last item factored into income to produce the AGI).

 

My own strategy, then, has been to take advantage of a bit of extra income and the odds of being in reasonably good health to pay a modest amount in premium and to throw what money I can into the HSA to reduce the heavy tax burden of being self-employed, while helping to build some rainy day health savings that I'll be able to draw on in a few years when I'm working less and, maybe, dealing with more medical issues. 

 

Again, not an expert and pretty confident about this, but would welcome a course correction is someone out there were to look over your/my shoulder.  

 

Best of luck.

First the HSA and self-employed health insurance deduction have nothing to do with each other. They are separate line entries on the schedule 1. If you can afford to put more into the HSA and you have some taxable income,  that contribution can reduce your  taxable income and save you tax on the bottom line.

Thank you @cooper1 and @Critter. Now, on to specific questions. TurboTax requires you to choose which spouse the HSA belongs to. This HSA is a family plan, not an individual plan, we are filing jointly, and we are putting the money into the HSA ourselves. So, I guess I would just choose one of us randomly, right? What goes into the Payer name/address/federal ID number? If I am putting the money into the account myself, I am my own payer, so what will the 1099-SA say in those fields? Next, Box 1 Gross distribution - what does that mean? "Box 1. Shows the amount received this year. The amount may have been a direct payment to the medical service provider or distributed to you." Do I understand that a distribution in this case is what was paid out of the HSA? Where in TurboTax do we state the amount of money that we transferred INTO the HSA so that we could pay these bills or reimburse ourselves for out of pocket expenses? And where does it show up if we put more money into the HSA than we used? Thank you again.

OK ... an HSA is an INDIVIDUAL item like an IRA ... it has but ONE owner even if you can pay for the spouse's med bills with it ... so in the program indicate who the owner is.... then wait for the 1099-SA form for the payee info since you don't know it yet.   The gross distribution is simply the amount you took out for the year.   And the contributions to the HSA are made in their own place ...

 

 

The HSA is handled in 3 parts in the TT program :

First the contribution:

https://ttlc.intuit.com/replies/4557768

https://ttlc.intuit.com/replies/4785646

 

Next the limitations screen to confirm you are eligible to make the contributions:

Until you complete the HSA portion of the TurboTax interview to establish your eligibility for an HSA contribution, TurboTax will treat the amount entered on the W-2 form as an excess HSA contribution.

https://ttlc.intuit.com/replies/4788059

 

And lastly any distribution:

https://ttlc.intuit.com/replies/4787864

@Critter - your answer is the type of detailed answer that I like to provide when helping. Thank you. A few points, though. My question doesn't relate to W-2s, but I found the place to enter the funds that I transferred to my HSA account. Under "Let's enter Joe's HSA contribution" >> "Any contributions you personally made (not through your employer".

The main mystery remains that the HSA account is a FAMILY plan, it doesn't belong to only me or only my spouse. But TurboTax only has an option for individual HSAs, one for each of us. So maybe I just put everything in my name; or do I have to split the "contributions" between the two of us and then split the distributions as well. 

An HSA is never a joint account.  The law dictates that an HSA is owned by only one individual, not jointly, even though distributions from the HSA can be used to pay the medical expenses of that individual and that individual's spouse and dependents.  If your HDHP insurance covers both you and your spouse, or covers you and another family member and the spouse has separate HDHP coverage, you and your spouse can split the family contribution limit between the two of you and each can make separate contributions to each individual's own HSA account.

 

An HSA deduction can affect the amount of the self-employed health insurance deduction when the insurance is purchased through the marketplace and is eligible for Premium Tax Credit calculated on Form 8962.  This is because the PTC calculation depends on AGI and AGI depends on the deductions for the HSA contribution (as well as on the deduction for the self-employed health insurance deduction in an iterative calculation).

@dmertz - thank you for your input as well. And your point about the HSA deduction impacting the premium tax credit seems critical to plan for and difficult to strategize. 

With respect to the HSA, I signed up for health insurance covering myself and spouse. In the member portal, the HSA associated with the insurance is not titled to one or the other of us. So, I don't see how an HSA is individual when, in fact, this is a family plan. If you were in this situation, where would you be entering the data for the HSA? TurboTax forces you to choose one or both spouses for the HSA.

the HSA must be in the name of  only one individual -  you or your spouse.  you and your spouse can each have their own account.   

 

for a married couple, if either spouse has family coverage (the insurance covers them and their spouse and/or a dependent.  the plan's deductible meets the minimum IRS requirement for a family deductible and doesn't exceed the maximum for a family deductible)   both spouses are treated as having family coverage.  For a family the maximum HSA contribution must be split equally unless they agree to a different split.  in your case that means you can make the family maximum  contribution to just your account.     it can be used to pay any  qualified medical expense, except health insurance premiums, for any member of the family.  in this case only one 8889 would be filed.

 

it is also permissible, in your situation, for your spouse to have an HSA.   in this case the total contributions to each of your accounts can not exceed the family maximum.   the spouse's account just like yours can be used to pay any qualified medical expense , except health insurance premiums, for any member of the family.  A second 8889 for the spouse would need to be filed  

 

In your situation if your are filing a joint return, then only one account is really needed.  The reasons H & S each having an HSA is when they're filing separate returns., have different employers (one could carry self-only coverage while the other had family coverage,  and other situations.         

 

 

@taxpayerpa 

 

You are confusing the HSA & HDHP terms ... to start with they are totally separate things and you can have one without the other.    If you have a HDHP for a family that is HSA qualified then you can make HSA contributions  to either your HSA, your spouse's HSA or a combination of both not to exceed the max allowed for the year. 

 

The HDHP is your health insurance that simply has a qualifying high deductible.  It is only good for one year and you pay premiums to have the coverage. It can cover self only or a family. 

 

Now the HSA on the other hand is NOT insurance and it lives on until it is depleted ... it is a Health Savings Plan which is essentially an IRA for medical expenses since it mimics a traditional IRA  and as such can only have ONE owner.  

 

1) you make contributions pre tax

2) it can be invested and the  earnings are  tax free 

3) all distributions are tax free  IF  you use them for qualifying medical expenses (better than IRA)

4) if you do not liquidate the account, when you turn 59.5 you have the option to roll it all into a traditional IRA you own (although I don't know why anyone would do so...  https://www.thebalance.com/hsa-vs-ira-you-might-be-surprised-2388481)

5)  you can make a one time transfer of IRA money into the HSA (actually a good idea...https://www.kiplinger.com/article/taxes/T027-C001-S003-tap-an-ira-tax-free-with-an-hsa-rollover.html)

In TurboTax you enter a contribution to an HSA as being for the individual in whose name that HSA account was established.  TurboTax then prepares that individual's Form 8889 to report the contribution; observe that Form 8889 applies only to a particular individual, even when filed with a joint tax return.

 

The law permits an HSA to be established only in the name of an individual.  An HSA is not permitted to be established jointly even when the eligibility for each of those individuals to contribute to an HSA was the result of being covered by a single High Deductible Health Plan that covers more than one individual.  If both spouses are covered by the same HDHP, each who is not also covered by disqualifying coverage can contribute to their separate HSA, provided that the combined contributions for the year do not exceed the family contribution limit for that year.  However, catch-up contributions for a particular year can only be made to the HSA of the individual who is over age 55.

@dmertz, @Anonymous, @Critter Our 2019 1099 has been prepared and filed using TurboTax. When I filed, the Form 8889 (HSAs) generated by TurboTax showed $8000 for HSA contributions made for 2019 in line 2, line 8, and line 12 (reflecting married status and over age 55 and having a family HDPH). Line 13 thus showed $8000 for the HSA deduction. This is how the return was filed (after running the final review).
I closed TurboTax and reopened the return, and the HSA deduction was suddenly reduced to only $3500. That change, of course, increased taxes owed.
Why did TurboTax revise the HSA contribution to that of an individual instead of for a couple?
The health insurance company for the HSA did not prompt us to set up two HSAs and it allowed a total contribution of $8000 into our sole HSA.
According to IRS publication 969, we should have been able to contribute a total of $8000 for 2019.
https://www.irs.gov/publications/p969#en_US_2019_publink[phone number removed]

Which calculation is correct and why: an HSA deduction of $8000 or $3500?

Thank you

It sounds like somehow the answer changed as to who was covered by an HDHP. Go back to that section and run the interview again. If you are covered by a family HDHP, then your spouse is considered to also be covered by a family HDHP even if the insurance policy is not in her name.  Your combined family contribution limit is $7000, which may be split between an account in your name and an account in your spouses name in any way that you choose to split it. The $1000 catch-up contribution is specific to the person who is over age 55 and can only be contributed to an account in that person’s name.  If you are over age 55 and the HSA is in your name, and you don’t make any contributions to an account in your spouse‘s name, then your limit would be $8000.

 

it sounds like the answer as to who owned the HSA changed, and maybe the answer about family or individual coverage changed. TurboTax is not supposed to change your answers, so I can’t tell if this is a program bug or a mistake that you somehow made. But you should be able to change it back.  Make sure that the name and Social Security number at the top of form 8889 is yours and not your spouse’s, if the contributions were made to your account.

You also need to look at what was actually filed, did you print or save a PDF when you filed?  

@ChampChiran I based my comments here on the PDF as filed and on a new PDF from a copy of the tax2019 file that shows the decreased HSA contribution

[EDITED] @Opus 17 Thank you. You wrote "which may be split between an account in your name and an account in your spouses name".

There is only one HSA ACCOUNT, which is for the family and into which I contributed $8000. There was no suggestion from the insurer that we should have created two HSA accounts - I'm not sure that was even possible, given that there is only one family HDHP. Even if there were two accounts, the grand total contribution would have been $8000.

The interview for "Tell us about the health-related accounts" asks who had an HSA, to which I only checked off myself and not my spouse, since the 1099-SA (for the 2019 HSA distribution) from the insurer came to me in my name only, though it is for use by me and my spouse.

[EDITED] TurboTax says that I had an excess contribution of $4500 and that I checked off that I would withdraw that excess contribution by July 15. However, I used all but $0.98 of those funds to either pay medical bills directly or to pay myself for out of pocket medical bills.

[EDITED A SECOND TIME] If I change the response to "No we're not going to make this withdrawal" then our federal refund is INCREASED. 

[EDIT 3] And the INCREASED refund is exactly what the FILED tax return shows. So there is a glitch in that TurboTax changed the response to that question after filing.

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@taxpayerpa wrote:

@ChampChiran I based my comments here on the PDF as filed and on a new PDF from a copy of the tax2019 file that shows the decreased HSA contribution

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You said above that you filed with $8000 on the form 8889, and it changed when you reopened your return after filing.  Do you know what you really filed?  Did you save the PDF when you filed, not just the PDF now?

 

You may want to get your transcript from the IRS to verify what you actually filed.  It may take 8-12 weeks to be available online after filing your return.

https://www.irs.gov/individuals/get-transcript

 

The problem is, I can't really advise on next steps without knowing what you really filed.  You don't want to file an amended return if the original return was correct and the file changed later.  If you are due a refund, has it been paid yet?  Is it the amount you expected from deducting an $8000 HSA contribution or something else?

 

If your form 8889 changed from an $8000 deduction to a $3500 deduction, that really doesn't make any sense and should be impossible.  Whose name and SSN are on the top of the form 8889, you or your spouse?  If this is your form 8889 and you reported contributions of $8000, but your limit was changed to $3500, you would also have a form 5329 assessing a penalty for excess contributions.  

 

It is possible you logged into a different online account that has an earlier version of your information?  Or if you are using Turbotax installed on your own computer, is it possible you opened an earlier version of the file, not the one you actually filed?

 

On the other hand, it would be perfectly OK if you contributed $3500 into an HSA in your spouse's name and $4500 into your own.  Are there two form 8889s?

 

I'm sorry to doubt you but there are so many changes that would have to occur if your HDHP limit was changed that it's not really possible that the program had a glitch.

 

Here are some things to look for:

1. Whose name and SSN are on the HSA account and how much did you contribute?

2. Whose name is on form 8889?

3. Is the contribution correct on line 2? What is the contribution limit on line 3?  

4. What is the deduction on line 13?

5. What is shown on schedule 1, line 12?

6. Do you have a form 5329 assessing extra tax?

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@taxpayerpa wrote:

[EDITED] @Opus 17 Thank you. You wrote "which may be split between an account in your name and an account in your spouses name".

There is only one HSA ACCOUNT, which is for the family and into which I contributed $8000. There was no suggestion from the insurer that we should have created two HSA accounts - I'm not sure that was even possible, given that there is only one family HDHP. Even if there were two accounts, the grand total contribution would have been $8000.

The interview for "Tell us about the health-related accounts" asks who had an HSA, to which I only checked off myself and not my spouse, since the 1099-SA (for the 2019 HSA distribution) from the insurer came to me in my name only, though it is for use by me and my spouse.

[EDITED] TurboTax says that I had an excess contribution of $4500 and that I checked off that I would withdraw that excess contribution by July 15. However, I used all but $0.98 of those funds to either pay medical bills directly or to pay myself for out of pocket medical bills.

[EDITED A SECOND TIME] If I change the response to "No we're not going to make this withdrawal" then our federal refund is INCREASED. 

[EDIT 3] And the INCREASED refund is exactly what the FILED tax return shows. So there is a glitch in that TurboTax changed the response to that question after filing.

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[EDIT 3] And the INCREASED refund is exactly what the FILED tax return shows. So there is a glitch in that TurboTax changed the response to that question after filing.

 

If the filed return has an allowable $8000 HSA deduction, then all we are trying to figure out here is what changed in the online account after filing.  It's academically interesting, but if you have a copy of your return and your return is correct, it doesn't really matter, does it?

 

[EDITED] TurboTax says that I had an excess contribution of $4500 and that I checked off that I would withdraw that excess contribution by July 15.

 

For Turbotax to think you have a $4500 excess, that means that the program has forgotten that you have a family HDHP but also forgotten that you are age 55 or over.  This does not make sense to me.

 

So I wonder if the program has assigned the HSA to your spouse instead, if they are under age 55.  Whose name is on the form 8889?

 

There is only one HSA ACCOUNT, which is for the family

 

This is a nitpick but it is important.  An HSA has only one owner, regardless of how that owner chooses to spend the money.  It's not a family account, it's your account.

 

There was no suggestion from the insurer that we should have created two HSA accounts - I'm not sure that was even possible, given that there is only one family HDHP.

 

If you are covered by a family HDHP, then your spouse is considered to be covered by an HDHP as well.  As long as your spouse does not have some kind of additional insurance coverage, then your spouse is eligible to open an HSA in their name.  Your overall family contribution limit would still be $7000, plus $1000 catchup. The $7000 can be split any way you like, but your $1000 catchup can only be contributed to your account.  When your spouse turns 55, they are eligible for a $1000 catchup as well, making your overall limit $9000, but their catchup can only be put in their account.  That means that, once your spouse turns age 55, you could contribute $8000 to an account in your name and $1000 in an account in their name (or $4500/$4500, or any other split you like) but you could not contribute $9000 to an account in your name.  If the HSA is sponsored by your employer, they probably won't open a spousal account, but you can open an HSA at most banks.  They may charge a monthly maintenance fee. 

 

The interview for "Tell us about the health-related accounts" asks who had an HSA, to which I only checked off myself and not my spouse,

 

There are two separate sets of questions.  First, you need to know that once you own an HSA, you can continue to spend from it, even if your insurance changes and you are not eligible to contribute any more.  So the part of the program that asks "Do you have HDHP coverage and how much did you  contribute to an HSA?" is separate from and follows different rules from "Do you own an HSA and did you receive a distribution?"

 

To go from an allowable $8000 deduction to an allowable $3500 deduction would mean that Turbotax has forgotten that you have family insurance and forgotten your age, or has forgotten who owned the account, or something even stranger.  But if the return you filed claimed an $8000 deduction, and if you have an HDHP policy that also covers your spouse, and neither you nor your spouse has some other kind of disqualifying insurance, then the $8000 deduction is OK and you don't have to worry about the changed file other than the fact that it shouldn't have changed.

@Opus 17 Thank you for your continued insight. Please see my 3x-edited post to which you responded while I was, unfortunately, editing. I am using TurboTax on my local computer. There was only one version of the tax2019 file until I made a copy post-filing to research this issue. The PDFs that I referred to are the PDF generated from TurboTax immediately post-filing (that is the version that was filed, no question) and then generated after closing and reopening the file. I am due a refund and only just filed on 7/15 so no refund has been issued. There is only ONE HSA and ONE 8889. There isn't a form 5329 for excess contributions.

The HSA account is under the health insurance plan for our family and does not have either of our names on it -- it is just THE HSA account for our family's insurance.

In the return, form 8889 asks "Name(s) shown on Form 1040, 1040-SR, or 1040-NR" and only my name is listed. I don't have any control over that. Box 1 indicates that the HDPD is for the family.

The contribution on form 8889 line 2 AS FILED shows $8000. But that is what was changed to $3500 by TurboTax after I filed.

Schedule 1 line 12 AS FILED is $8000 and as changed is $3500.

I agree with Opus 17, obtain a copy of your 2019 tax return transcript to see what the IRS received as your filing.

 

It seems that at some point your HDHP type got changed from family to single, TurboTax flagged the $8,000 as being in excess of the amount a person with single HDHP coverage is eligible to contribute and you indicated that you would withdraw the "excess"  $4,500.  You'll need to go back to the HSA section and make sure that it shows family coverage, make sure that the contribution you personally made shows $8,000 and make sure that you have explicitly removed the $4,500 entry from the box labeled "Any personal contributions you made but withdrew before July 15, 2020" on the "Let's enter your HSA contrbutions" page.