High Deductible Health Plan coverage lapse question

[wxmtsinghua]

I know this topic has been discussed many times but it's now my time to ask this question - and I have a different situation that hasn't been discussed. 

In 2022 our family was on a family HDHP under my wife's name for the full year, and she also contributed to HSA under her name. In 2023 we switched to my HDHP plan - still a family HDHP plan but under my name and I also contributed to HSA. 

So after I filed my HSA, Turbotax asked the question: "What type of High Deductible Health Plan did [Wife's Name] have on December 1, 2022?" Since in 2022 the whole family was under her HDHP, have to choose the answer "family" 

Then the next question came as "Did [wife's name]'s High Deductible Health Plan coverage lapse in 2023 due to disability?" and the choices were only between "lapse due to disability" and "lapse due to other reasons". 

But she did not have a coverage lapse in 2023 - she was under my HDHP for the full year 2023. 

How should I deal with this situation? Any answers appreciated

[Mike9241]

likely you incorrectly answered a question along the way. the law says if one spouse has family coverage both have family coverage.

[wxmtsinghua]

I triple checked that I did not answer any question wrong. 

There has been many discussions on this forum that if wife was continuously on my HDHP, I should select that wife didn't have HDHP to get the right tax return, which was a long lasting bug in TT. 

But now the situation is that my wife was on her HDHP in 2022 but switched to mine in 2023, in this case whatever I choose, I could not avoid the "insurance lapse"message in TT. 

Anyone can provide any insights? 

Thanks,

Xiaoming

[BillM223]

It is not clear from your initial post, do you both have an HSA? Did you both go through the HSA interview, in which you specified the type of HDHP coverage you have?

Generally, this question pops up when one spouse does not have an HSA so never tells TurboTax that he/she had HDHP coverage. So TurboTax misinterprets the answer to the question "What type of High Deductible Health Plan did [Name] have on December 1, 2022?" If you answer Self or Family, TurboTax thinks that you must have invoked the last-month rule in 2022, which required that person to maintain HDHP coverage for all of 2023 - and since that person didn't go through the HSA interview, it looks like their coverage "lapsed".

I agree that this is very confusing - the only thing I can say is that the preceding question was worse, "Did you use the last-month rule in the previous year?" (no, no one understood that question).

However, some people are supposed to answer Self or Family to the December 1, 2022 question, and your spouse is one of them.

You see (look at the Last-month rule on page 6 in IRS Pub 969), If you use the last-month rule, then you are allowed the full annual HSA contribution limit for the year no matter how few months you had HDHP coverage, so long as you had HDHP coverage on December 1, 2022 (for 2023 returns). 

The catch is that you have to keep the HDHP coverage for the entire next year, or you will be considered "lapsed" (technically, "failure to maintain HDHP coverage").

So you are thrown into an additional interview, which tries to find out if you really failed to maintain coverage and if so, how much you should be penalized. Note that another process is to determine how your annual contribution limit would have been had you not used the last-month rule.

Based on what you have said (spouse was under one HDHP coverage, then switched to another), it sounds to me that when you go through this extra interview, TurboTax will realize that you spouse did maintain HDHP coverage afer all - just under a different policy.

So please don't despair. Go ahead and answer "family" to the "What type of High Deductible Health Plan did [Wife's Name] have on December 1, 2022?" question, let it tell you that she has lapsed, then go through the following interview where TurboTax will ask you enough questions about 2022 and 2023 to realize that she hasn't lapsed at all.