why does turbotax say my HSA max contribution is $0?

[whodiini]

My daughter was a dependent student and graduated in June of 2021.   Then got a job in November and the job contributed to an HSA for the month of December.  I had her covered under my family HDHP  through April and then had her covered under my non-HDHP until November. In Dec, she was covered under her own HDHP from her new job. Entering this information into turbotax results in a maximum HSA contribution limit of $0 and a penalty of 6% for the employer contribution to her HSA in Dec.  This makes no sense.  According to the tax rules, she should be able to contribute the maximum HSA amount.  I dont even know what to change to avoid having to pay 6%!  ( She is my dependent for the 2021 tax year, but needs to file a return to get her federal tax withholding back.  Otherwise she would not because she did not make enough to require a return. If she didnt file a return, there would be no penalty! )  Thanks

[DaveF1006]

According to IRS publication 969, she cannot claim an HSA contribution if she is a dependent on someone else's return. 

[whodiini]

Thank you. 

In reading the publication, it also says a person is not qualified even if they have a HDHP, not a dependent,  if they have secondary coverage of a non-HDHP.  Do you know if I get rid of their secondary coverage through my non-HDHP immediately (effective end of Feb), will they qualify for an HSA in 2022 or is it already too late for 2022 since they had secondary coverage for the month of Jan 2022?

[DaveF1006]

Yes, they will qualify if you remove them from your non-HDHP. She will need to enroll in her own HDHP to be eligible for an HSA. Here are the requirements according to Pub 969 she is an eligible individual for the plan if:

• You are covered under a high deductible health plan (HDHP), described later, on the first day of the month.
•  You have no other health coverage except what is permitted under Other health coverage, later.
•  You aren’t enrolled in Medicare.
• You can’t be claimed as a dependent on someone else’s 2022 tax return. (the pub says 2020 but this will be for the tax year 2022)

What is great about qualification  for HSA is that it uses the last-month rule to be eligible. What this means is that she is considered to be an eligible individual for the entire year if she is an eligible individual on the first day of the last month of the tax year (December 1 for most taxpayers). So if she claims her own dependency, and if she waits until Dec 1 to enroll, she is eligible to claim her full contribution for the year. I am using this as an example but you can see where this is going.

[whodiini]

Thanks again.

Does this work if she is enrolled the full year in a HDHP, on a HSA the full year, but I remove her from my non-HDHP before Dec 1?  So that on Dec 1, 2022 she qualifies for the HSA and therefore qualifies for the full year? 

[BillM223 · Accepted solution]

Yes, she would qualify to contribute to the HSA in this case.

The qualification is actually for whether or not she can contribute to an HSA. She evidently already has the HSA (once you fund the HSA, you have it until you close it), so it's just a question of when she can contribute to it.

As noted, the "last-moth rule" (whether or not she had HDHP coverage on December 1st and no conflicting coverage on December 1st) does allow her to use the full annual HSA contribution limit (one presumes for Self-Only); however, there is a caveat - she must stay under HDHP coverage for all of the following year (2023). If she loses HDHP coverage - or gets conflicting coverage - then the annual HSA contribution limit for this year gets recalculated and she may have to pay tax on what her HSA contributions should have been. 

[NelehCr0z]

In May of 2021 I received a refund or rebate of $280 from LA Care for an over payment on my health premium thru Covered CA. I am unemployed and just using my Health Savings Account balance to pay for all my medical bills and health premiums. I am not enrolled in an High Deductible Health Plan. When I got this rebate I called the administrator of the Health Savings Account and was advised to return or deposit the amount back to my Health Savings Account, which I did. Then yesterday, I got a form 5498A which shows the amount of $280 as total contributions made in 2021. How do I enter or treat this on my tax return? Will there be a penalty on this?

I would appreciate a prompt response. Thank you in advance.

[BillM223]

I don't know what the person at the HSA administrator was thinking. What you should have done is reported a "mistaken distribution".

Please look at the 1099-SA Instructions for the section entitled HSA Mistaken Distributions.

So if the HSA custodian accepts the return of the mistaken distribution (it was a mistake because you did not mean to spend the $280 in the first place for a non-qualified medical expense), then the custodian will (1) probably ask you to fill out a form, and (2) ask you to send them the $280.

Well, you sent them the $280 but they recorded it as a contribution as opposed to the return of a mistaken distribution. Call the HSA custodian and ask them to convert this "contribution" to be the return of a mistaken distribution.

Be nice, because they don't have to accept the return of a mistaken distribution. But if they balk, refer them to this line in the instructions for the 5498-SA: "For repayment of a mistaken distribution amount, see HSA Mistaken Distributions, earlier. Do not treat the repayment as a contribution on Form 5498-SA." Note that the Instructions for the 1099-SA and the 5498-SA are at the same link (see link above).