Can't file return - error in 8889-T form for high deductible health plan (HDHP) because I have an HSA, but I did not have a HDHP

[hdhp]

I keep getting an error for my return because of Form 8889-T.

I had an HDHP in 2021 and part of 2022, but not in 2023. I still had money in my HSA that used up in 2023. The system is making me select self-only or family coverage for the year. Turbotax help asked me to select self-only, but then the system is making me go through every month in line 3 and select none, self-only or family.

I'm concerned now that indicating that I had a self-only coverage in 2023 and then selecting none for all months of the year will set off red flags with IRS. But I literally cannot move past this error unless I do it. How do fix this and will it still be clear to IRS that I had no HDHP coverage or contributions to HSA in 2023 and I only simply had qualified withdrawals? 

[BillM223]

When you see "Was [name] covered by a High Deductible Health Plan (HDHP) in 2023?" you should answer "No, I did not have coverage.

This sets the calculations for any excess (if you had made any contributions, which you did not).

Later in the Review, TurboTax gets confused and wonders how you got to the HSA review if you you didn't have any HDHP coverage. So it asks you what to put in Line 1 of the 8889, Self or Family.

By this point, you have already answered that question with the "No, I did not have coverage", so just answer "Self" for Line 1 in the Review - this will not affect the calculations but will get you past this question in the Review.

[hdhp]

Thanks, @BillM223 !

The problem is that I selected "Self-only" already, but it then prompts me to fill out the same for every single month in 2023. I did that and marked all of them as none and then went to re-review the HSA section. When I did that and once again selected "No, I did not have coverage", it made the error pop-up again and it's making re-mark every month in 2023 with either none, self or family. 

Tl;dr - my concern is that marking "self-only" and then marking each month as "none" for coverage resets my earlier answer in the HSA section from "No, I did not have coverage" and would proceeding with this as described above trigger any red flags?

Thanks! 

[BillM223]

Did you answer the question ""Was [name] covered by a High Deductible Health Plan (HDHP) in 2023?" with "No, I did not have coverage."? The rest of my answer depends on you doing that.

As for you having every month marked as NONE but line 1 as Self, TurboTax has been doing it this way for the 8 years that I have been answering HSA questions, and we have not had any push-back from the IRS. 

[hdhp]

Yes, I have responded with "No, I did not have coverage." to that question.

[BillM223]

No, marking Line 1 as Self does not "reset" your previous answers. And no, based on our experience, this does not raise any red flags.

[hdhp]

Thanks @BillM223 ! I was just about to file my return and the following popped when reviewing form 8889:

It is marking Line 2 as if I made contributions to HSA in 2023 when I did not. The amount is for the Excess HSA contributions carried over from 2022, but I already used those for qualifying medical expenses. 

It seems like Turbo tax is calculating it as a contribution under line 2, but form 8889-T instructions only say to include contributions made directly to the HSA. 

Is this expected behaviour because right now it seems like I contributed to HSA in 2023 (even though I didn't) while not being covered by HDHP plan. 

Thanks!

[BillM223]

The IRS instructions are incomplete. We are clearly intended to enter the carryover amount somewhere on lines 1 through 13, because the presence of the carryover affects line 13. However, the IRS instructions do not tell you where to put the amount.

For years, TurboTax attempted to deal with the incomplete instruction by invisibly adding the carryover to line 2. But this caused minor issues because sometimes taxpayers noticed that the printed numbers on lines 1 to 13 did not add up.

However, the IRS never made a comment until suddenly in early February 2024, the IRS e-file process rejected returns where the lines 1 -13 did not "foot" (an accounting term meaning in this case that the numbers don't add up). So TurboTax had to change the 8889 so that the carryover amount printed on line 2 (or at least was added to the number that would have gone there).

This made the IRS happy, and the e-filed returns were now accepted; however, other taxpayers like you have noticed that what TurboTax prints doesn't match the instructions. This is because it is not possible to match the contradictory or lacking instructions.

What is important to TurboTax (and should be to you) is that the line 13 value is correct, and that carryover of excess HSA contributions are correctly handled. TurboTax has always made sure that the results were correct, even if it was not possible to fully comply with the lacking IRS instructions.

It is OK if there is a value on line 2, an audit would quickly reveal the source of the value.