I am an independent child under my parents' insurance plan (I'm 24). Can I still be covered by my parents' HSA account?

[GameofLoans16]

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.

[Opus 17]

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.

[GameofLoans16]

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.

[Opus 17]

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.

[GameofLoans16]

ok, then yeah. They don't support me.

[dmertz]

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:

https://www.irs.gov/pub/irs-pdf/p969.pdf

[dmertz]

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.

[Opus 17]

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?

[dmertz]

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).

[a_g]

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

[a_g]

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."

[dmertz]

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.

[BrannonK]

What if you got your own HDHP at the end of the year. how would i know if i was covedred before that.

[Opus 17]

@BrannonK 

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.  

[bos3]

@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