Can I claim a child as a dependent who transitions from student to working with health insurance?

[MayaD]

You can still claim your child as a dependent if you provided more than half of his/her support and he/she meets all the other requirements of Qualifying Child.

Qualifying child

• Are they related to you? The child can be your son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister, adopted child or an offspring of any of them.
• Do they meet the age requirement? Your child must be under age 19 or, if a full-time student, under age 24. There is no age limit if your child is permanently and totally disabled.
• Do they live with you? Your child must live with you for more than half the year, but several exceptions apply.
• Do you financially support them? Your child may have a job, but that job cannot provide more than half of her support.
• Are you the only person claiming them? This requirement commonly applies to children of divorced parents. Here you must use the “tie breaker rules,” which are found in IRS Publication 501. These rules establish income, parentage and residency requirements for claiming a child.

[OverBurdenedTaxPayer]

The dependent is my child, she lives with me and I pay for more than 50% of her support.

The problem is we both have HDHP with HSA accounts. She was covered by mine for 9 months and she then got her own for the last three months of 2021. Form 8889T  on her return, says she cant have an HSA since I am claiming her as a dependent.

[DMarkM1 · Accepted solution]

That is correct.  A person who can be claimed as a dependent on someone else's return is not eligible to contribute to an HSA.  Here is the IRS Publication 969 for reference.  Note: the "Qualifying for an HSA" paragraph and the "Caution" below that paragraph.  Even if you don't claim her, if you are entitled to claim her, she doesn't qualify to contribute.  

Therefore she has a zero contribution limit.  In her return she will need to indicate the excess contribution and withdraw it and any earnings from the plan by 18 Apr or 17 Oct if she files an extension.  The contributions will then become "other income" added to her schedule 1 and line 8 of her form 1040.  Withdrawing the excess will avoid the 6% excise tax on the disallowed contribution.