HSA Contribution limit for 2019 - partial year 2019 coverage and going on Medicare in 2020. Turbotax incorrect numbers

[mister_bill]

UPDATE -- I realized my error, I was only adding one catch-up contribution instead of 2. So my $7500 contribution was in fact correct since it's 10/12 of $9000. I don't understand why TT is claiming that I overpaid by $1, and I guess the $8000 max contribution it told me was just for me, and an extra $1000 for my wife.

My original post:

I may have over-contributed to my HSA in 2019 and I am confused about the way that Turbotax is handling it. Here are my details (I've tried to include everything).

I had a HDHP health insurance plan from March-December of 2019. I also have it this year but both my wife and I are turning 65 so we will be losing the HDHP and going on Medicare. I contributed $7500 to the HSA plans in 2019, $6500 for me and $1000 for my wife. Note sure how I came up with that number, which I now think was too high.

I understand that even with the partial year coverage in 2019 I would be able have been able to make the normal full year contribution ($7000+$1000 catch-up) IF we met the "Testing Period" and been enrolled in the HDHP on 12/31/20. But that will not be the case since we will both be on Medicare by then. So it appears that my maximum contribution should be $6666.67 (10/12 of $8000).

Now, for Turbotax. The first problem is that Turbotax does not ask if I intend to be in the HDHP on 12/31/20, so it's telling me that I can contribute the full $8000. So I tried to fool it into calculating the 10/12 number by saying that my coverage was fro February-November. It then came up with the correct maximum contribution. However, when I let it figure out my over-contribution, it only claims that we went over by $1 instead of $833 ($7500-6667).

So my questions are 1) am I correct that my max HSA contribution for 2019 should have been $6666.67, and 2) why is TT telling me that I only have an over-payment of $1 instead of $833? I have not filed yet, so I can still fix it before filing.

Thanks.

[BillM223]

1. You do not automatically lose HDHP coverage when you turn 65 - many people think that but it's not true - you only lose HDHP coverage when you actually sign up for Medicare. You can be 67, not on Medicare, and on an HDHP and still contribute to your HSA.

2. The catch-up to the contribution limit is for the owner of the HSA. The HSA belongs to an individual, no matter that both spouse can usually contribute to it and both spouse's expenses can be paid out of it. So if the HSA belongs to you, you can contribute up to $8,000 for 2019 if you have Family coverage. If your spouse also has an HSA and is 55+, then you two can contribute another $1,000 to her HSA, for a total of $9,000 - but you have to put at least $1,000 in each HSA.

So did you and your wife have separate HSAs?

3. TurboTax assumes that you are going to use the last-month and calculates accordingly. It would be nice if there were an option to turn it off, but to be honest, most taxpayers would have no idea what the last-month rule was.

4. When you apply for Medicare, the SSA sometime back dates the application by 6 months, which means that you would lose your HDHP coverage in 2019 (depending on when you applied for it). So have you applied for it? Did they backdate?

5. "am I correct that my max HSA contribution for 2019 should have been $6666.67," - as far as TurboTax and your 2019 return is concerned, your HSA contribution limit is $8,000. You don't need to change that. TurboTax won't report an excess contribution this year, if you change the months of coverage back to what it should be.

6. Then next year, when you answer "What type of HDHP coverage did [name] have on December 1, 2019?", you will answer "Family", and TurboTax will detect a lapse in coverage because you did not indicate that you were covered all year in 2020. 

Then you will be taken through some screens whose job it is is to determine how much you should have contributed without the last-month rule and calculate what to do. The "excess" will be added back to Other Income and any penalty assessed. 

7. Yes, you are right that the max annual contribution in 2019 would be $6,666.67 without the last-month rule. I imagine that the $1 is from a rounding error (TurboTax tends to round numbers immediately).

Your puzzlement on why the $1 instead of $833 may be because how you reported that other $1,000. Was this on your W-2 or what?

[mister_bill]

So I realized that I never responded (and thanks for the reply). Yes, my wife has her own HSA and she went on Medicare as of July 1. The insurance we were on (I'm still on) is retiree coverage from my former employer and it was both poor and expensive, with the HSA being the only redeeming value. It was so bad that they didn't even cover preventive care at 100% when the ACA mandated it, because it was not required by law for this plan. So we are getting off it as soon as we can, which was July for my wife and November for me. The Medicare enrollment was not back-dated and I had previously checked elsewhere and am fairly comfortable saying that it only starts the month that your benefits actually started.

For 2020, I calculate that I can contribute $6066.66 in total, which is based on

$3500 for half the year at the $7100 family plan limit,

$1183.33 for four months on an individual plan ($3550 yearly limit), 

$500 for six months of the $1000 catch-up for my wife and

$833.33 for me at 10 months.

For 2019, I calculated that I could contribute $7500 in total, which is based on

$5833.33 for ten months at the $7000 family plan limit,

$833.33 for ten months of catch-up for my wife and

$833.33 for ten months of catch-up for me.

Had i planned to be on the HSA plan for all of 2020, I could have contributed the full $9000 last year. But since I was not, I had to pro-rate.

There are a bunch of HSA contribution calculators on the web, but I haven't been able to find anything that takes my scenario into account, so an Excel spreadsheet had to do.