Made a mistake in my 2021 with HDHP HSA

[dennisjs]

Hello,

I started a HSA account through my company last year and contributed to it. I marked "none" for "What type of High Deductible Health Plan did you have?" last year by mistake.

When filing this years tax I have checked the box "self" and it is asking me "We see you had a break in HDHP health plan coverage during 2022. Let us know if this was the result of a disability."

What do I do and how do I fix this? Any help will be greatly appreciated.

[BillM223]

I need to clarify what you have said.

In 2021, you had HDHP coverage, and you contributed to your HSA.

In 2022, you did not have had HDHP coverage, and you saw the question, "What kind of High Deductible Health Plan did [name] have on December 1, 2021?" (yes, 2021). When you answered "Self", TurboTax responded that there was a break in your coverage.

This question is trying to figure out if you used the last-month rule in December 2021. Rather than explain it all, let's just confirm: did you have HDHP coverage in 2021 and not in 2022? Did you have HDHP coverage for every month in 2021? Did you or did you not have HDHP coverage in 2022?

This will be easy to fix, once I am sure that I understand your situation. For example, does "last year" (above) mean 2021 or 2022? We in the tax biz are always a year behind, so it is confusing when taxpayers use "last year" and "this year" because we don't know which year they mean.

[dennisjs]

Thanks for the quick reply BillM223,

By last year I mean 2021 Tax form. I believe I had HDHP because I had an HSA account and I contributed to it. Following this belief, I had HDHP through out every month in 2021 and 2022. The issue is that for my 2021 tax return I stated I didn't have HDHP. 

[BillM223]

Let me clarify something: HDHP is your health insurance policy, and an HSA is an account similar in many ways to an IRA. To be permitted to contribute to an HSA, you must be covered by an HDHP policy.

That is, just because you contributed to an HSA is not proof that you had HDHP coverage. It should be, but I have seen a number of taxpayers (and their HR people) get confused on this. It is not a question of belief.

Confirm with your HR people that you had HDHP coverage for all months on 2021 and 2022.

In the HSA interview, TurboTax asks you if you had HDHP coverage for at least one month in current year, and if so, for which months, and what kind of coverage. It is difficult to get that wrong.

You said, "We see you had a break in HDHP health plan coverage during 2022. Let us know if this was the result of a disability." This statement is the result of you being asked, "What kind of High Deductible Health Plan" did [name] have on December 1, 2021?" and you answering "Self" or "Family". However, you would not have seen "We see you had a break in HDHP health plan coverage" if you had not indicated that you had HDHP coverage in each month in 2022. 

So did you have HDHP coverage for each month in 2022? You said you did, but you could not have or else you would not have gotten this message.

"The issue is that for my 2021 tax return I stated I didn't have HDHP. " What is this referring to? On what screen did you state that you did not have an HDHP?

[dennisjs]

I confirmed with HR people that my HDHP coverage for each month in 2021 and 2022.

"The issue is that for my 2021 tax return I stated I didn't have HDHP. " What is this referring to? On what screen did you state that you did not have an HDHP?

For my 2021 tax return this question came up at the last section when reviewing my tax documents. Specifically the question on the tax return was "What kind of High Deductible Health Plan" did [name] have on December 1, 2021?" and you answering "Self" or "Family".

[BillM223]

For my 2021 tax return this question came up at the last section when reviewing my tax documents. Specifically the question on the tax return was "What kind of High Deductible Health Plan" did [name] have on December 1, 2021?" and you answering "Self" or "Family".

This question would not appear on your 2021 return, but on your 2022 return. Yes, it's counterintuitive, but on your 2022 return, it asks about the HDHP policy on December 1, 2021.

So please reconsider which return you are talking about. 

Second, if you really had HDHP coverage for every month in 2022 (and 2021, for that matter), you would not have seen this question in any case. This question is asked ONLY if you did not report any HDHP coverage for every month in 2022.

So your statements are not consistent.

Did you tell TurboTax that you had HDHP coverage for every month in 2021 and 2022? I.e., "I was covered by a Family plan (or Self-only plan) every month of the year".

Is it possible that you are filing married joint? Is it possible that [name] in the statement above was your spouse's name and not your name?

[Opus 17]

Let's start with 2021.  I feel there is some confusion over 2022 (which is easier to fix) and 2021.

On your 2021 return, you would be asked if you had a qualifying HDHP, whether it was self or family coverage, and for what months of 2021 you had coverage.  Your payroll contributions would be captured from your W-2, and you also had the opportunity to report if you made separate, out of pocket contributions.  If you had HSA contributions, but you accidentally indicated you did not have qualifying HDHP insurance, Turbotax would tell you that you had excess contributions that you needed to remove from the HSA, and if you failed to remove them, you would be assessed a penalty.

So we need to look at your 2021 tax return.  You should have a form 8889 for the HSA.  Line 9 will be the payroll contributions (your voluntary payroll contributions are counted together with any employer match).  Line 3 is your eligibility for 2021.   If line 9 is more than line 3, then you made excess contributions and you would be subject to a penalty.  That penalty is calculated on form 5329 in section 7, starting at line 42.

So, questions:

1. How many months of 2021 were you enrolled in HSA-eligible HDHP insurance?

2. What is on line 3 of form 8889?

3. What is on line 9 of form 8889?

4. Do you have a form 5329 and if so, what is the penalty on line 49?

Once we understand 2021, we can move on to 2022.  

[dennisjs]

1. How many months of 2021 were you enrolled in HSA-eligible HDHP insurance?

From January to December

2. What is on line 3 of form 8889?

2021 form 8889 line 3: $3600

3. What is on line 9 of form 8889?

2021 for 8889 line 9: $2500

4. Do you have a form 5329 and if so, what is the penalty on line 49?

I don't have form 5329

[RobertB4444]

Then 2021 was fine.  You just need to tell TurboTax all of the months that you had coverage in 2022 and you will be fine.

@dennisjs 

[Opus 17]

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@dennisjs wrote:

1. How many months of 2021 were you enrolled in HSA-eligible HDHP insurance?

From January to December

2. What is on line 3 of form 8889?

2021 form 8889 line 3: $3600

3. What is on line 9 of form 8889?

2021 for 8889 line 9: $2500

4. Do you have a form 5329 and if so, what is the penalty on line 49?

I don't have form 5329

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Then it seems you did not make any errors on your 2021 return, despite thinking you did.

You only have to worry about 2022.  The warning message comes from the program thinking you did not have an HDHP for part of the year.  This can occur if you skip the HSA interview or leave it too early.  Go to the HSA interview and review or re-run it.  You can access it from either the income page (for 1099-SA) or the medical expense deduction page.

One of the first questions should be "did you have qualifying HDHP all year"?  Answer yes, if that is the case.  You may also see a page where you need to check "self", "family" or "none" for each of the 12 months of 2022, to indicate what kind of HDHP you had for each month.  As long as you answer "self" or "family" for all 12 months, the warning about a gap in coverage should disappear.