This turns out to be a really long answer, but this is probably the only year you will have to analyze it this thoroughly. Sorry about that.
1) You can contribute to an HSA if you are enrolled in a qualifying HDHP and you have no other medical coverage that is not an HDHP. (It actually doesn't matter if you are a dependent, but a bunch of other stuff matters.)
2) You can be covered on your parents' medical insurance until you reach age 26, even if you are not their tax dependent. That includes a medical FSA that your parents might have, since a medical FSA can be used to pay for care expenses for the owner, a spouse, or their dependents. And, you are eligible to be covered by a parents' FSA even if you aren't their dependent, if the only reason you are disqualified is your income.
This is the part that gets complicated. You can be covered by their FSA if you are their dependent or if you could be their dependent and are only disqualified by your income. There are two kinds of dependents, qualifying child and qualifying relative.
Qualifying child rules.
You can be their dependent if you are a full time student age 23 or less, and you live in their home more than half the year, and you don't provide more than half your own support.
- Full time student means attended school full time (as defined by the school) for at least 1 day in each of 5 months of the year. So if you graduated college in 2020, you are probably going to be considered a full time student for tax purposes in 2020.
- You are considered to live in their home even while being away at school, because the tax rules assume you are only temporarily at school, unless you have taken steps to permanently move out of your parents house (like, you get an apartment with a spouse or partner and live their full time from then on.)
- Support you provide yourself includes your wages and tuition paid with student loans in your name. Support provided by your parents includes a percentage of their household expenses (rent, utilities, insurance, food) plus direct expenses they pay for you like food, clothing, travel, medical and tuition.
Qualifying relative rules
If you are 24 or older, or don't live at home more than half the year, then you can still be a dependent if they paid more than half your total living costs for the year and your income is less than $4200.
This is the point where the special FSA rule comes in; if your parents paid more than half your total support for 2020, but they can't claim you as a dependent because your income will be more than $4200, they can still cover you with their FSA, and that disqualifies your HSA contributions.
So now we have to ask:
1. Are you covered by your parents HSA eligible HDHP insurance policy and they don't have an FSA? Then you are eligible to contribute to an HSA, because all your medical coverage (yours and theirs) is HSA eligible.
2. Are you covered by your parents medical insurance that is not a qualified HDHP? If yes, you are not eligible to make HSA contributions until they take you off the policy.
3. Do your parents have an FSA? If no, then you are eligible to make HSA contributions. If Yes, then we need to analyze your dependent status.
3a. Could your parents claim you as a qualifying child dependent based on your age, residency and support for 2020? If yes, you are not eligible for an HSA because their FSA covers you.
3b. Will your parents support you for more than half your living costs for 2020? If yes, then you are not eligible for an HSA because their FSA covers you.
If you are covered now by a parent's FSA, you are probably closed out of an HSA for the whole year, because FSAs can't be terminated mid-year unless your parent changes their job. But if you are covered by a parent's medical insurance, they can remove you, and you become eligible to make HSA contributions beginning the first day of the month after you have no other overlapping coverage.
Now I have to tell you about the "last month rule." Normally, if are only eligible for 1 month of the year, you can only contribute 1/12 the annual maximum. However, if you are eligible to make HSA contributions on December 1, 2020, then you can contribute up to your full year limit ($3550) as long as you remain eligible for all of 2021. If you become ineligible in 2021, then most of your 2020 contributions become retroactively ineligible and you pay a penalty.
(This will not be as complicated next year because the year you graduate is the hardest year to figure out your dependent status.)
Incidentally, you also need to review the dependent rules because if you can be claimed as a dependent, you are legally supposed to check the box that says you can be claimed, even if you don't want to be claimed and your parents don't want to claim you. If you graduated in 2020 and can be considered to have lived at home, it may be a closer call than you think.
Whew.
