My mom contacted her CPA and the CPA said that I could NOT open my own HSA account because I am still under my parents' health insurance, but this is contrary to what I've read online.
There are multiple separate issues.
Can you contribute to an HSA in your own name? (HSA's are like IRA's, every account has a single unique owner.) You can contribute to an HSA in your own name if you are covered by a qualifying HDHP (high deductible health insurance plan) and have no other insurance coverage. If your parents cover you, but it is not an HDHP, then you can't contribute to an HSA. If your parents cover you under a family HDHP, then you might be able to contribute to an HSA depending on other factors.
(Side note: You can OWN an HSA in your name, and use it to pay for medical expenses for yourself, a spouse and your dependents, even if you aren't eligible to make contributions. A person who is covered under an HDHP and opens an HSA, and later changes to a different health insurance policy, can still own and use the HSA for qualified medical expenses, they just can't make new contributions. )
Separately, your parents can only use their HSA to pay for your medical expenses if you are their dependent. When you are no longer their dependent, they can't use their HSA accounts for your expenses, or if they do, the withdrawals will be subject to income tax and a penalty. Note that at age 24, you can't be claimed by your parents as a dependent any longer unless you are disabled and unable to work, or are not disabled but have less than $4050 of taxable income.
Thirdly, regardless of what kind of health insurance coverage you have, you can't open an HSA if you can be claimed as a dependent by your parents. As mentioned, at age 24, you can't be claimed as a dependent unless your income is less than $4050.
So this might be tricky because for 2017 my parents did NOT claim me, but I think they could have because my taxable income was less than $4050. I worked abroad and excluded my foreign income.
The rules for a qualifying relative dependent are that you must earn less than $4050, AND your parents must provide more than half your total financial support. That seems unlikely if you were working abroad and had your own income.
Your HDHP coverage being provided by your parent's insurance plan does not disqualify you from being eligible to contribute to your own HSA. What can disqualify you is your parents being eligible to claim you as a dependent on their tax return (regardless of whether or not they actually claim you) for the year for which you would be making the contribution.
See IRS Pub 969 for the HSA eligibility requirements:
As Opus 17 indicates above, since you are age 24 and "independent," it's unlikely that you can be claimed as a dependent on your parent's tax return. Assuming that's the case and you have no disqualifying health coverage, you are permitted an HSA contribution up to the full family limit for the year.
Hmm. When two spouses are covered under an HDHP with family insurance, their combined contribution limit is $6900 -- they can do up to that between the two of them.
How does that work adding a child who is not a dependent? Does the child get an entirely separate $6900 limit? Or does it get combined with the parents?
There is nothing in the tax code that ties an adult child's limit being tied to the limit of the parents. The tax code only addresses the limit as it applies to spouses, splitting the family limit between the spouses. The result is that the adult child is covered by a family HDHP. The adult child is also not the spouse of either of the parents, so the adult child is not subject any limits that apply to spouses. This result came about when the ACA changed the law to allow unmarried nondependent children to remain on their parents' health insurance plan until age 26 (and did not change section 223 to make a single family limit apply to all of those covered under a particular HDHP, even if not a spouse).
Hey @dmertz ,
Appreciate your insight on this topic. My situation is similar to the original poster, but a little more nuanced.
In 2019 (and 2020) I was (and continue to be) covered by my mother's family HDHP as an eligible independent child. On Jan 1, 2020, I received individual HDHP coverage from my employer and a corresponding HSA account.
I know that I am eligible to contribute to my HSA because I am covered under 2 qualified HDHPs. What I would appreciate help in understanding is whether I am eligible to contribute up to the individual or family limit for 2019 (and 2020).
Thank you,
Adam
I am assuming that I can contribute to the family limit for both 2019 and 2020 based on the information in this thread and this excerpt from the instructions for Form 8889 (https://www.irs.gov/pub/irs-pdf/i8889.pdf:(
"If you were covered by both a self-only HDHP and a family HDHP at the same time, you are treated as having family coverage during that period."
That seems to be the case. I am still unaware of any specific guidance from the IRS on HSA contributions by adult children still on their parent's insurance policy.
What if you got your own HDHP at the end of the year. how would i know if i was covedred before that.
It actually doesn’t matter. If you were covered by an eligible HDHP on December 1, 2020,you can use the “last month rule” to contribute up the the yearly maximum as if you had been covered by an eligible plan all year. ($3550 if a self-only plan). However, you must remain eligible for all of 2021. If you lose eligibility before 12/31/2021, then your 2020 contributions become ineligible as well.
@Opus 17 Can you clarify if one lose eligibility before 12/31/2021 then the 2020 contribution becomes ineligible as well?
If i turn 26 on May of 2021 and is cover under my parent's family plan - since i am no longer "dependent" since 24, I have contributed to HSA for 2020. I will lose eligibility in May and depending what my new plan is. If i have individual HDHP starting June of 2021. What can i contribute to HSA for 2020 and 2021?
Alice
You would only lose eligibility for 2020 if you are following the “last month“ rule. The last month rule says that you are considered eligible for the entire year as long as you have coverage on December 1 of that year and you maintain coverage for all of the next year.
If you are eligible for all of 2020 because you had eligible coverage for the entire year, then you are not relying on the last month rule.
Let’s suppose you had eligible coverage starting September 1, 2020, but you contributed a full $3550 or full $7100 because you were relying on the last month rule, and then you lose your coverage in 2021. You are still eligible for the 4 months when you had coverage, but you lose the last month rule, so that in this example, 8/12 of your contributions become ineligible.
Eligibility is determined by your insurance coverage on the first day of each month. If you are covered by your parent‘s eligible plan on May 1, and then you enrolled in a different eligible plan as of June 1, then you have maintained your eligibility, even if there was a break between your birthday and June 1 while you arranged new coverage. If you did not obtain new coverage until June 15, then your HDHP eligibility begins July 1, and since you had a one month break in 2021, you would lose your qualification for the last month rule )if you were relying on it.)
Thank you so much for the clarifying in such details.
I have had only family HDHP via parent for since 2018. So, for 2020, I have family HDHP for the entire year. I can contribute my own HSA account for $7100 since I am on family plan & no last month rule apply.
In 2021, when i turn 26 in May - so i would have 5 month of family HDHP and let's suppose i get a HDHP starting in June 2021 - how would i figure out my HSA contribution for 2021. Is it 5/12 of 7200 + 7/12 of 3600?
Thank you so much for your time and thoughtful answers.
Alice
@Opus 17 I just funded my own HSA for 2020 on feb 28, 2021. Is my doctor payments made during 2020 ok as expense to disburse from my HSA account?
I had plan on saving my receipts and disburse the funds later. Since I paid my 2020 medical expense out of pocket - I wanted to know if I should start saving the documents starting on 1/1/2020 expense forward or 2/28/2021 since that is the day of HSA account creation.
Thank You so much as always.
Medical expenses are only qualified to be reimbursed from an HSA if they are incurred after the HSA was opened. If you were eligible to open an HSA in 2020 under your parent‘s insurance, but you did not realize it and only opened the HSA this week, then you cannot reimburse yourself for past expenses.
Hi, I'm divorced and am on my ex-husband's family medical insurance. It's a HDHP and I'm interested in funding my own HSA. Can I do this? What's the maximum that I could contribute given that it's a family plan? I don't know if he contributes to his own HSA plan but would I need to split the contribution amount with him or could I contribute the maximum for a family (with a catch up as I'm older)? Thanks for any help on this.
If you are covered by a family HDHP and have no other disqualifying coverage, your contribution limit for 2021 is $7200, Or $8200 if you are age 55 or older. If you are unmarried, you do not have to share that limit with your ex-spouse.
Thank you so much for your response. Just one more quick question on this: I had an FSA during 2020 that ended in September. I spent the last money left in the account in October. Can I still contribute the full amount for 2020? Thank you!
@ehj8ehj8 wrote:
Thank you so much for your response. Just one more quick question on this: I had an FSA during 2020 that ended in September. I spent the last money left in the account in October. Can I still contribute the full amount for 2020? Thank you!
You can contribute to an HSA in your name, retroactive to 2020, as long as you do it before May 17, 2021. You will also have to tell the HSA bank this is a 2020 transaction so they process it correctly. Then, you can take the tax deduction on your 2020 tax return.
The amount you can contribute can be calculated in 2 ways.
If you use the last month rule, you can contribute the full amount for 2020. This would mean that, if you were covered by a family HDHP on December 1, 2020, you can contribute the full amount, as if you were covered all year. However, if you lose your HDHP coverage at any time during 2021, you retroactively lose your 2020 eligibility, and will be subject to additional income tax and penalties. The full amount would be $7100 for a family HDHP or $3550 for a single HDHP, minus any amounts already contributed to an account in your name.
Or, you can contribute based on your eligibility on a month by month basis. You are eligible to contribute up to $295 or $591 for each month that you had eligible HDHP coverage (and no other disqualifying coverage) -- eligibility is determined on the first day of each month. And you have to account for any amount already contributed, of course. If you use the month-by-month method for your 2020 contributions, you don't run into problems if your health insurance changes in the middle of 2021.