HSA - factoring the deduction for partial year

[jake2033]

Hi ,

Here is my scenario. I am in family coverage HDHP plan ( me and my child) and My wife has her own insurance plan (non- HDHP part of year 2022)

2021

Me and child  - full year  ( hdhp family plan)

wife switched to HDHP plan (only her)  Starting Sep 2021 - Aug 2022

please note both our contributions did not exceed the yearly limits.

2022

Me and child  - full year  ( hdhp family plan)

wife switched to NON-HDHP plan (only her)  Starting Sep 2022 ( hdhp ended for august 22)

please note both our contributions did not exceed the yearly limits.

Turbotax ask question regarding her coverage HDHP  in 2022  and seee coverage in HDHP lapse and calculates the new limit and raise the due amount.

Not sure why it does this since me and my child is in the family hdhp plan in 22 and we meet the limits for the family plan for the year. Turbo tax doesn't ask anything about who is included in HDHP plan

How do I resolve this issue.?

[BillM223]

Did TurboTax ask your spouse why her/his HDHP coverage lapsed? If so, please read on...

Your issue is with the question that asks "What type of High Deductible Health Plan did [name] have on December 1, 2021?"

​​​​​​​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 2021 (yes, 2021). 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 (2022).

***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 2022.

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 2021, then enter NONE 
• If you had no HDHP coverage for all of 2021, then enter NONE.
• If you did not have an HSA in 2021, then enter NONE.
• If you had an HSA in 2021 but did not contribute to it in 2021, then enter NONE.

Only taxpayers who had their own HSA in 2021 AND who contributed to their own HSA in 2021 should answer “Family” or “Self” or “None” (which can be the right answer in some cases).

[jake2033]

thank for the quick reply. little confused.

my spouse had HSA   from sep2021 - aug 2022.

I had my own HSA all years the included my kid. 

The problem is Turbox task  ask questions related to the lapse for spouse and when raise the amount due.

you had mentioned 

******

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 2021, then enter NONE 
• If you had no HDHP coverage for all of 2021, then enter NONE.
• If you did not have an HSA in 2021, then enter NONE.
• If you had an HSA in 2021 but did not contribute to it in 2021, then enter NONE.

******

Even though spouse has her own HSA from sep2021- aug 2022, should I enter NONE to all the question above? my question irrespective of my spouse had HSA ,I have a family plan with my child  so why is turbo tax changing the limits. 

hope this explanation helps.

[BillM223]

Remember that I wrote: "NOTE: each spouse can have an HSA. The use of "you" below refers to whichever spouse's name was in the question above." So the text below that point referred ONLY to your spouse.

HSAs are owned by the individual, so it makes no difference what your coverage was. 

So, what HDHP coverage did your spouse have on December 1, 2021? From your post, it seems that your spouse had Family coverage (because you two shared it). So none of the possibilities I listed above are for your spouse. Therefore, your spouse should enter "Family". Then your spouse will go through a number of questions to determine how much your spouse would have been allowed to contribute without the last-month rule - because your spouse did not have HDHP coverage for all of 2021 but did have coverage on December 1, 2021, your spouse used the last-month rule such that your spouse was able to claim the full annual HSA contribution limit, but with the condition that your spouse stayed under HDHP coverage for all of 2022 (which your spouse obviously did not).

However, you may or may not have to pay a penalty, but you won't know until your spouse answers Family and completes the interview.

***

What do you mean "TurboTax is changing the limits"?

[jake2033]

Thanks for the response,

my spouse has self HSA so I assume it is self HDHP coverage.

so in December 2021 it was HDHP coverage

I with my child had a family HDHP coverage  

my point since my wife  changed from HSA to non HSA in 2022 should she enter none or family for months starting sep2022 to dec 2022. I mentioned to Tax questionnaire for 2022 that she had different plan types during the year.

What coverage HDHP should spouse choose for between self , Family and None for 2021 broken by month?

What coverage HDHP should spouse choose for between self , Family and None for 2022 broken by month?

What do you mean "TurboTax is changing the limits"?

I meant the that contribution of 7300 limit was reduced  if I select the "None" for lapse in HDHP coverage starting in sep2022 to dec 2022. and TT applied last month rule for dec 2021 and reduces her 2021 contribution in year 2022

question why is turbotax reducing the limit since me and child are in my HDHP family coverage. so shouldn't the limit be 7300 irrespective of spouse lapsed months?

[BillM223]

For the months that you had Family HDHP coverage, then you spouse had Family HDHP coverage, without regard to the Self-only policy that your spouse may have had through her/his own job.

There is no such thing as a "self HSA". The words Self and Family refer to the type of HDHP policy that you have. And if one of you has a Family HDHP policy, then you are both considered to be covered by a Family HDHP policy. This is not obvious, but it's the way that the IRS wants it.

Once your spouse was covered by a non-HDHP policy (I assume that this was in September 2022), then your spouse should report "NONE" for that month (and following).

As for the reduction, it's not your limit that is being reduced, it's your spouse's. As you noted, TurboTax is calculating what your spouse's annual HSA contribution limit would have been if your spouse would not have used the last-month rule. This usually results in an increase in tax. However, the situation you have is complex because your spouse could have fallen back on the Self-only coverage in the calculation.

Remember that any part of the $7,00 that is used by your spouse is taken away from you and your child. It's not that you and your child get $7,300 AND your spouse get $7,300 - you two have to share the $7,300.

[jake2033]

Thanks, getting it somewhat. 🙂

my understanding was that since me and my child in in my HDHP family plan it should keep the max family contribution limit 7300. I know the total including my wife is 7300. 

but  changing the  month from Sept2022 to December 2022 to "None" for my wife reduces her limit an in turn reduces the family limit. That is the part that is confusing. Since me and my child can contribute 7300 to HSA was my understanding.

[BillM223]

"but  changing the  month from Sept2022 to December 2022 to "None"" - Sorry, but I don't know when you are referring. Are you referring to the first time you listed coverage month by month (in the regular part of the HSA interview), or the second time you list month by month coverage (in the part of the interview when TurboTax is asking about your spouse's coverage in 2021?).