This situation happens when you or your spouse answers the question "What type of High Deductible Health Plan (HDHP) did [name] have on December 1st [previous year]?" with "Family" or "Self", but did not show HDHP coverage for all of the current tax year.
There are three ways to not show HDHP coverage for all of the current tax year.
(1) you or your spouse answered "I had different types of coverage at different times of the year" to the earlier question "Was [name] covered by a High Deductible Health Plan (HDHP) in [the current tax year]?" and indicated no coverage at all in some months.
(2) you or your spouse indicated that you were on Medicare in the current tax year.
(3) you or your spouse don't have an HSA so you never went through the HSA interview and so never answered the question "Was [name] covered by a High Deductible Health Plan (HDHP) in [the current tax year]?" <=== this is your situation
TurboTax is asking the first question because it needs to know if you took advantage of the "last-month rule" in the previous tax year. Under this rule, if you had HDHP coverage on December 1, of the previous tax year, you were able to take the full annual HSA contribution limit as your limit, without regard to how few months you were under the HDHP in the previous tax year. The catch is that if you do this, you have to stay in the HDHP for the entire "testing period", that is, all of the current tax year (by this point, for one of the three reasons above TurboTax already thinks that you left HDHP coverage in the current tax year).
In this case, if you did leave HDHP coverage in the current tax year, then you will have a "failure to maintain HDHP coverage", and TurboTax has to calculate the income adjustments and penalties for this situation.
What to do:
1. If you were in HDHP coverage for ALL of the previous tax year, then you can answer "none" to the question "What type of High Deductible Health Plan (HDHP) did [name] have on December 1st [previous year]?" This will skip the lapse in coverage message.
2. If you were not under HDHP coverage at all in the previous tax year, then you can answer "none" to the same question above. This will skip the lapse in coverage message.
3. If you were in HDHP coverage for ALL of the current tax year, then you can answer "none" to the question above. This will skip the lapse in coverage message.
4. If you did not make any contributions to your HSA in the previous tax year (perhaps because you did not have one), then you can answer "none" to the question above. This will skip the lapse in coverage message. <=== this is your situation
5. Only if you started HDHP sometime after January 1st of the previous tax year and ended HDHP coverage sometime before December 1st of the current tax year and made contributions to your HSA in the previous tax year should you answer "Family" or "Self" - since you are in the very last-month rule situation that the original question is looking for.
For #5, there will be several screens to follow which try to determine if you owe any penalty for taking advantage of the last-month rule in the previous tax year yet did not stay in the HDHP for all of the current tax year. Please do answer these questions as they are necessary to complete a correct return.
[Edited 3/10/2020 4:40 pm CDT - made year-neutral]
Yes
No
