What is a hdhp how do I determine if that's what I had?

[JulieCo · Accepted solution]

An HDHP is a High Deductible Health Plan that has higher deductibles than a traditional health plan.  Therefore, you would typically know you have an HDHP by the amount of the deductible.  See the amounts below.  And, an HDHP can be combined with an HSA (Health Savings Account) which allows one to pay for certain medical expenses with money free from federal taxes.

The IRS defines a high deductible health plan as any plan with a deductible of at least $1,350 for an individual or $2,700 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $6,650 for an individual or $13,300 for a family. (This limit doesn't apply to out-of-network services.)

More information can be found on healthcare.gov -- https://www.healthcare.gov/glossary/high-deductible-health-plan/

[ndy856]

How will the IRS find out for the previous year (aka tax year when filing)? What happen when I contribute to HSA without knowing if my plan is HDHP or not. Will I be penalized?

[BMcCalpin]

Rather than consult Healthcare.gov, it would be better to go straight to the insurance carrier and ask them if your plan is HDHP qualified. The reason is that there are some subtle differences between high deductible plans that may render some plans not suitable for an HDHP. See High Deductible Health Plan (HDHP) on page 3 at https://www.irs.gov/pub/irs-pdf/p969.pdf. 

It can be difficult for the non-insurance professional to be able to discern if a plan qualifies to be an HDHP in the sense that the IRS uses it for purposes of having an HSA, but the insurance carrier ought to know.

[BMcCalpin]

@ndy856you won't be punished for not knowing if your insurance is a true HDHP; you would potentially suffer consequences if your plan really wasn't an HDHP.

If you opened and contributed to an HSA without having qualifying HDHP coverage, then, yes, your contributions would be disallowed, they would be added back to your income, and you may face various penalties and interest from tax newly assessed from a previous year.

However, in practice, I don't know how the IRS would know that you did not have an HDHP unless they discovered it as part of a detailed audit. Unless HDHPs report the SS#s of people who have valid HDHP policies to the IRS (I don't think they do), the IRS can't easily cross reference your tax return to the HDHP database (which, as I suggested, may not exist).

Having said that, if you realize that you made contributions to an HSA when you were not eligible, you would do well to amend previous returns to clean it up. If you are part of the 1% or so who get random detailed audits each year, the auditor may well ask you for details such as your insurance carrier. Then it will all come out.

And while the normal "statute of limitations" on audits is 3 years, that number gets reset if you amend the return for any reason (another 3 years), and if the IRS suspects fraud there is no "statute of limitations". So you might have this hanging over your head for quite a while.

[ndy856]

Massive headaches. HSA is a tax free growth investment tool (almost like ROTH IRA but with strict way of spending).  Any middle-rich class out there can go contribute in HSA and just claim that they had HDHP on that tax year.  I feel like the IRS would go out there making insurance companies provide all the HDHP database.

[BMcCalpin]

Yeah, that's a possibility. But the IRS has been updating their software in recent years. I have seen letters to taxpayers from the IRS that the IRS would not have sent out years ago, but they can now because they are able to correlate more data.

The IRS knows if you have HSA activity because the HSA custodian has to file reports to the IRS about such activity...I guess if it's not done now, it will be soon that the IRS will require reports from insurance companies, too...

[Bint]

Thank you!

[skywire]

Ask my insurer whether my plan is an HDHP? Hahahahahaha!