Form 8889 Not Calculating Correctly for My Situation

[odyssey2000]

We are using the desktop version of TurboTax Home and Business. Both my wife and I are over 55 with HSA accounts. We had a family HDHP from Jan - May 2023 tied to my HSA account, then I switched to Medicare coverage, while my wife switched to an individual HDHP from Jun 2023 – Dec 2023.

As a family, we should be eligible to contribute $8,750 to our HSA accounts for 2023. I have contributed $3,645.83 to my account (family limit prorated over 5 months). My wife should be able to contribute the difference ($5,104.17) to her account. However, when I enter these amounts in the software, TurboTax is indicating we made an excess contribution of $2,118, and the program is attempting to charge us an extra 6% tax.

I am pretty sure that my numbers are correct, and TurboTax is making a calculation error here. How do we get this resolved?

[dmertz]

"My wife should be able to contribute the difference ($5,104.17) to her account."

That's incorrect.  She did not have family coverage the entire year.  You allocated all of the prorated amount for family coverage to your contribution, so I calculate wife's maximum contribution for the remainder of the year with self-only coverage as:

$3,850 * 7 / 12 + $1,000 = $3,245.83.  (rounds to $3,246)

Because she is over age 55 and was covered the entire year, she gets the full $1,000 catch-up.  This still doesn't quite agree with TurboTax saying that there is an excess contribution of $2,118.  Perhaps you entered something differently than you described.

[odyssey2000]

Thanks for the quick response. I did some additional research after my post, and agree that the $5,104.17 figure is incorrect. But since she was covered under a self-only policy on Dec 1, shouldn’t she be able to take the larger of your $3,246 figure or the single max contribution over 55 limit of $4,850, as long as we remain under the $8,750 family limit?

[dmertz]

In 2023 TurboTax, when I specify that you had family HDHP coverage for 5 months followed by Medicare for 7 months and your wife had family HDHP coverage for 5 months followed by 7 months of self-only HDHP coverage, both over age 55, TurboTax indicates no excess contribution when I enter $3,646 as your contribution and $3,246 as your wife's personal contribution.  Increasing either amount by $1 results in an excess contribution.

[odyssey2000]

Thanks. I’ll double check my entries, but shouldn’t she be able to claim the larger of $3,246 or $4,850, as long as we remain under the $8,750 family limit?

[Opus 17]

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@odyssey2000 wrote:

Thanks for the quick response. I did some additional research after my post, and agree that the $5,104.17 figure is incorrect. But since she was covered under a self-only policy on Dec 1, shouldn’t she be able to take the larger of your $3,246 figure or the single max contribution over 55 limit of $4,850, as long as we remain under the $8,750 family limit?

---

You are asking about the last month rule.  It doesn't work the way you think it works in this situation, because of your contributions.  

[odyssey2000]

Here's an example given in the Instructions for Form 8889:

Example. In 2023, you are an eligible individual and have family HDHP coverage. In March, you divorce and change your coverage as of April 1 to self-only. Neither you nor your ex-spouse qualify for the additional contribution amount. Your ex-spouse continued to have family HDHP coverage and was an eligible individual for the entire year. The contribution limit for the 3 months you both were considered to have family coverage is $1,937.50 ($7,750 × 3 ÷ 12). You and your ex-spouse decide to divide the family coverage contribution in the following manner: 75% to your ex-spouse and 25% to you. Your contribution limit for 9 months of self-only coverage is $2,887.50 ($3,850 × 9 ÷ 12). This amount is not divided between you and your spouse.

Because you are covered under a self-only policy on December 1, you will show $3,850 on line 6 (the greater of either (a) $3,371.87 ($1,937.50 family coverage + $2,887.50 self-only coverage – $1,453.13 spousal allocation) or (b) the maximum amount that can be contributed ($3,850 for self-only coverage)). Your ex-spouse would show $7,750 on line 6 (the greater of either (a) $7,265.62 ($1,937.50 family coverage for the 3 months prior to the divorce + $5,812.50 family coverage maintained after the divorce – $484.38 spousal allocation) or (b) the maximum amount that can be contributed ($7,750 for family coverage)).

Isn't this similar to our situation with the exception that:

• We are still married
• We qualify for the additional contribution of $1000

[Opus 17]

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@odyssey2000 wrote:

Here's an example given in the Instructions for Form 8889:

Example. In 2023, you are an eligible individual and have family HDHP coverage. In March, you divorce and change your coverage as of April 1 to self-only. Neither you nor your ex-spouse qualify for the additional contribution amount. Your ex-spouse continued to have family HDHP coverage and was an eligible individual for the entire year. The contribution limit for the 3 months you both were considered to have family coverage is $1,937.50 ($7,750 × 3 ÷ 12). You and your ex-spouse decide to divide the family coverage contribution in the following manner: 75% to your ex-spouse and 25% to you. Your contribution limit for 9 months of self-only coverage is $2,887.50 ($3,850 × 9 ÷ 12). This amount is not divided between you and your spouse.

Because you are covered under a self-only policy on December 1, you will show $3,850 on line 6 (the greater of either (a) $3,371.87 ($1,937.50 family coverage + $2,887.50 self-only coverage – $1,453.13 spousal allocation) or (b) the maximum amount that can be contributed ($3,850 for self-only coverage)). Your ex-spouse would show $7,750 on line 6 (the greater of either (a) $7,265.62 ($1,937.50 family coverage for the 3 months prior to the divorce + $5,812.50 family coverage maintained after the divorce – $484.38 spousal allocation) or (b) the maximum amount that can be contributed ($7,750 for family coverage)).

Isn't this similar to our situation with the exception that:

• We are still married
• We qualify for the additional contribution of $1000

---

You are reading the wrong instruction.  The section you quote starts with

"If you are treated as having family coverage for each month..."

Because your spouse switched from family to self-only coverage when you went on Medicare, that instruction does not apply. You need the instructions a bit lower down that start with,

• If you are not treated as having family coverage for each month, use the following steps to determine the amount to enter on line 6."

[Opus 17]

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@odyssey2000 wrote:

Thanks. I’ll double check my entries, but shouldn’t she be able to claim the larger of $3,246 or $4,850, as long as we remain under the $8,750 family limit?

---

Even though she is covered by the last month rule, her maximum is reduced by your contributions.

[odyssey2000]

The example provided is from the section your reference. The full text is below:

• If you are not treated as having family coverage for each
month, use the following steps to determine the amount to
enter on line 6.

Step 1. Refigure the contribution limit that would have
been entered on line 5 if you had entered on line 3 the total of
the worksheet amounts only for the months you were treated
as having family coverage. When refiguring line 5, use the
same amount you previously entered on line 4.

Step 2. Divide the refigured contribution limit from Step 1
equally between you and your spouse, unless you both agree
on a different allocation (such as allocating nothing to one
spouse).

Step 3. Subtract the part of the contribution limit allocated
to your spouse in Step 2 from the amount determined in Step
1.

Step 4. Determine any other contribution limits that apply
for the tax year and add that amount to the result in Step 3.
Enter the total on line 6.

Example. In 2023, you are an eligible individual and have
family HDHP coverage. In March, you divorce and change
your coverage as of April 1 to self-only. Neither you nor your
ex-spouse qualify for the additional contribution amount. Your
ex-spouse continued to have family HDHP coverage and was
an eligible individual for the entire year. The contribution limit
for the 3 months you both were considered to have family
coverage is $1,937.50 ($7,750 × 3 ÷ 12). You and your
ex-spouse decide to divide the family coverage contribution
in the following manner: 75% to your ex-spouse and 25% to
you. Your contribution limit for 9 months of self-only coverage
is $2,887.50 ($3,850 × 9 ÷ 12). This amount is not divided
between you and your spouse.

Because you are covered under a self-only policy on
December 1, you will show $3,850 on line 6 (the greater of
either (a) $3,371.87 ($1,937.50 family coverage + $2,887.50
self-only coverage – $1,453.13 spousal allocation) or (b) the
maximum amount that can be contributed ($3,850 for
self-only coverage)). Your ex-spouse would show $7,750 on
line 6 (the greater of either (a) $7,265.62 ($1,937.50 family
coverage for the 3 months prior to the divorce + $5,812.50
family coverage maintained after the divorce – $484.38
spousal allocation) or (b) the maximum amount that can be
contributed ($7,750 for family coverage)).

[Opus 17]

@odyssey2000 

Your form 8889:

Line 2. 3645

Line 3. 3229

Line 4. 0

Line 5. 3229

Line 6. 3229

Line 7. 416

Line 8. 3645

Line 11. 0

Line 12. 3645

Line 13. 3645. This is your deduction.  (Assuming no employer contributions.  If there were, you can figure it out but it comes out the same.)

Your wife's form 8889.

Line 2. lets use @dmertz 's number of $3246.

Line 3.  For the line 3 limitation, we use this rule:

If you were, or were considered, an eligible individual for the entire year and you changed your type of coverage during the year, enter on line 3 (see (6) in this list) the greater of:

1. The limitation shown on the last line of the Line 3 Limitation Chart and Worksheet (in these instructions), or

2. The maximum amount that can be contributed based on the type of HDHP coverage you had on the first day of the last month of your tax year.

The amount for a. is $5475, the amount for b. is $3850.  So line 3 is $5475.

Line 4: 0

Line 5: $5475

Line 6: Here we use the special line 6 instructions

Refigure the contribution limit that would have been entered on line 5 if you had entered on line 3 the total of the worksheet amounts only for the months you were treated as having family coverage	This is $7750 x 5 ÷ 12, her maximum for the months she was covered by family coverage. $3229
Divide the refigured contribution limit from Step 1 equally between you and your spouse, unless you both agree on a different allocation (such as allocating nothing to one spouse).	Husband has already taken $3229
Subtract the part of the contribution limit allocated to your spouse in Step 2 from the amount determined in Step 1.	Spouse takes zero
Determine any other contribution limits that apply for the tax year and add that amount to the result in Step 3. Enter the total on line 6.	Spouse has single coverage for 7 months, $3850x7 months÷12=2246.  2246+0=2246

Line 6 =$2246.

Line 7=$1000

Line 8=$3246.

Assume lines 9 and 10 are zero

Line 11: zero

Line 12: $3246 (from line 2)

Your wife's limit is $3246. 

[odyssey2000]

Thanks for taking the time to clarify. How come in the example from the instructions, the spouse is able to take the single max contribution limit, while here, we are not? Is it because I shifted to Medicare during the year instead of staying on an HDHP?

[odyssey2000]

And is it just me, or are these IRS instructions somewhat lacking?

[dmertz · Accepted solution]

Yes, the instructions are a bit convoluted.

The calculation of your wife's maximum contribution is done before the allocation of the family limit between spouses.  With none of the family limit allocated to you, your wife's limit would be $6,475, the greater of the $6,475 calculated using the worksheet or $4,850 under the last month rule.  The portion of the family limit that is allocated to you, $3,229, must then be subtracted from $6,475, resulting in a maximum contribution for your wife of $3,246.