TurboTax claims that my High Deductible Health Plan during 2022. That is false. How do I correct the error?

[BillM223]

I assume that you are referring to a "lapse" in coverage message.

if so, 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).

[irvrobinson]

I'm sorry, I left out a word in the question. Yes, TurboTax software falsely concluded my HDP coverage lapsed.  Entering "none" caused it to conclude my coverage lapsed for a reason other than a disability.  The coverage never lapsed.  My situation is also unusual in that I'm Medicare eligible due to my age, but I'm still covered by my spouse's HDP.  I never used the last month rule in 2021.  This situation looks like a bug in TurboTax 2022.

[BillM223]

As I noted above, because you did not have an HSA, you did not go through the part of the HSA interview where you indicated your HDHP coverage for 2022. 

TurboTax has to ask everyone if they had HDHP coverage in 2021, because if they had, they may have used the Last Month Rule. So, if you answered Family or Self to the HDHP coverage in 2021, TurboTax assumed that your coverage had "lapsed" since you didn't appear to have any HDHP coverage in 2022.

Several years ago, the screen would just ask you if you had used the Last Month Rule in the previous year. Not surprisingly, no taxpayers (and few tax professionals) knew what the Last Month Rule was, so every taxpayer came to the Community to ask what it meant.

What you see now is the rewrite of the screen to try to accommodate this situation. Hopefully, they will find a better way to ask taxpayers about this. This will be difficult, because taxpayers - who don't really understand how the HSA works - start by assuming that TurboTax is in error in asking about the year 2021, and it goes downhill from there.

[irvrobinson]

Got it.  In my mind this is a bug or a design flaw or whatever we want to call it in TurboTax.  The situation of where one spouse is over 65, which means Medicare-eligible, but is covered by a younger spouse's HDP is common.  TurboTax should be asking each taxpayer every year if they're covered by an HDP or not.

Nonetheless, I haven't determined any negative ramifications in the generated tax forms from this problem.  If you're Medicare eligible you can't contribute to an HSA whether you're covered or not, but your non-Medicare eligible spouse can, and if the HSA is a family type the Medicare eligible spouse can use family HSA funds to pay medical bills.  So for the time being I'm just going to move on.  If you know of generated tax form ramifications from this problem I would appreciate knowing about it.

Thank you for your prompt and expert help.

[BillM223]

"If you're Medicare eligible you can't contribute to an HSA whether you're covered or not,"

Actually this is a misconception (although a common one). The Tax Code appears to say this (referring to taxpayers old enough to be eligible for Medicare), but the IRS later clarified in a Notice that only if you are actually covered by Medicare are you precluded from contributing to an HSA. From IRS Notice 2008-59, Question 5.

If you are putting off starting Social Security until as late as possible to maximize your SS payments, you do not have to go on Medicare if you are covered by a large employer group health plan, whether yours or your spouse's. This is often the situation whereby a taxpayer over 65 is not on Medicare. I say, "often", but I believe I've read that only 4% of taxpayers delay their Social Security until age 70.

No, there are no negative ramifications to your situation. As I approach the age of 70 myself, and I continuing to contribute to my HSA (I am not on Medicare and we are covered by my spouse's HDHP), I am watching for the day that I enroll in Medicare with its 6-month fallback. That is, after the age of 65 when you enroll in Medicare, they reset your start date to 6 months earlier. This means that your eligibility for contributing to the HSA stops 6 months before you thought you would enroll.

So, in your 69th year, you have to keep track of your HSA contributions to make sure that you allow for the reduced annual HSA contribution limit.

Make sense?

[irvrobinson]

Excellent points.  And they reinforce my contention that TurboTax should ask very specific questions about Medicare, HDPs, HSAs, and ,medical coverage, and refrain from inference.  Of course they can infer that if you collect Social Security payments and you're over 65 you can't contribute to an HSA, but the software should ask specifics anyway.

I was incorrect about the impact on tax forms.  It is true that in my situation the fact that TurboTax infers I'm not covered by an HDP does not impact my tax amount due, but on Form 8889 there is a section (Part III) for failure to maintain an HDP.  I can't tell if 8889 is included for everyone, or just those TurboTax infers failed to maintain an HDP.  If the former is true, I suppose I have nothing to worry about.

[blueone]

Our healthcare provider just sent us a 1095 B.  TurboTax documentation says entering it isn't necessary, though TurboTax still says my HDP coverage lapsed.  The 1095 B says otherwise.

It's this way, Intuit, simply put.  After many years of using TurboTax, either fix this inexcusable bug or this is my last year using your software.  Allow users to enter 1095 B/C forms to keep this nonsense from happening.  If this is too difficult for Intuit, you don't deserve my business.

[everettdae]

Wow, this threw me off. That question needs to be reworded. Based on the replies here it appears it needs revision, and to answer None for this question - otherwise it thinks there was a lapse. Glad this was posted here.

I hope this gets corrected. I am going to answer None for this question.