Major disconnect on 1099 SA issues

[kbmoose1]

Several things unclear.  I'm helping my daughter with her taxes.

Background:   Daughter has insurance through employer for her and a child - husband isn't on her policy.  Daughter has HSA.    Husband has insurance (no HSA) through employer - family coverage isn't an option, and the policy is free to him.   

1 - Although I can't find where we entered it, Turbo Tax has a $2,400 HSA deduction for my daughter.

2 - Although  her husband carried the same insurance the entire year, Turbo Tax claims there's a lapse in his coverage. 

I think the $2,400 is correct, but don't understand where it came from so I can't verify it.  We have no 1099-SA.   

The lapse in coverage is incorrect - I read a couple items about how it happened, but they don't address the way that he's insured.

Please advise.

[BillM223 · Accepted solution]

$2,400 deduction

When an employer contributes to the HSA of an employee OR when the employee contribute to the HSA by means of payroll deduction, then this total is not only put on the W-2 in box 12 with a code of W, BUT this same amount is removed from Wages in boxes 1, 3, and 5 before the W-2 is printed. That is, there is no "deduction" because this amount was never in income anyway. 

No, this is not obvious. Furthermore, you can't tell that this happens just by looking at the W-2 - instead, you have to ask the payroll people at her employer.

So, don't worry, all is OK.

Lapse in coverage

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).

You said, "I read a couple items about how it happened, but they don't address the way that he's insured." In what way does this not cover your son-in-law's situation?

[kbmoose1]

Thank you.  I understand now.   I'd probably word things differently that they're worded, but I do understand.