HSA and qualifying relative dependent

[boco2023]

I have family HDHP health insurance coverage. My boyfriend is covered on that plan. He didn't have any income in 2023, so he is not filing taxes this year. He qualifies as my "qualifying relative dependent", according to IRS rules. Contributions to his HSA account in year 2023 were made by family members.

The IRS HSA rules mention that:

To be an eligible individual and qualify for an HSA, the taxpayer must meet the following requirements:

• Not be eligible to be claimed as a dependent on someone else’s tax return (see Caution). Caution: If another taxpayer is entitled to claim the individual as a dependent, the individual cannot claim a deduction for an HSA contribution.

The question is: if my boyfriend is not filing his taxes this year because he didn't have an income in 2023, he will not claim a deduction for his HSA contributions. In this case, could he be claimed as dependent on my tax return? Or the IRS HSA dependent rules applies no matter if he is not filing his taxes (and is not claiming deduction for his HSA contributions) because he didn't have an income in 2023?

[Mike9241]

a dependent can not have an HSA. It doesn't matter whether they are claimed as a dependent or not. Since he qualified as a dependent he can not (nor can family members) make HSA contributions. so anything put in + income earned must be withdrawn

he will have to file because of the HSA contributions. 

[BillM223]

Whether or not your boyfriend can be claimed as a dependent is a matter-of-fact and a matter of whether or not you actually claimed him. So it sounds like he has to admit to being able to be claimed as a dependent.

So, as Mike says, this disallows all contributions to HIS HSA. So what to do?

1. Claim him as YOUR dependent (it sounds like you already have).

2. This allows you to spend money out of your HSA on his medical expenses (such a person must be claimed as a dependent on your return).

3. Is your boyfriend filing his own return? If so, the following happens:

3.A. Because he can be claimed as a dependent, all contributions (whether by him or others) will be declared as in excess. 

3.B. He will contact the HSA custodian and ask for the withdrawal of excess contributions (in this case, all contributions) and the earnings they made while in the HSA.

3.C. The HSA custodian will send him a check for the excess and the earnings. 

3.D Since you have a family HDHP policy, you should have enough of an annual HSA contribution limit (I hope) so that you could send the excess contribution to your HSA.

4. Start doing tax planning now, because the above is true ONLY because your boyfriend can be claimed as your dependent. This fails if you get married or he makes more than $4,700 ( varies by year) or any number of things.

NOTE: items #3.A>D must be done by April 15th. Since you will do your return before you get the excess withdrawal check, you may have to float a loan for yourself, since you need to deposit your 2023 contribution to your own HSA by April 15th.

All this make sense?

[Opus 17]

An HSA is owned by one person only.  No matter who gives money to a person to make contributions, only the owner makes the contributions, and the owner is responsible for all tax consequences.

You can use your HSA to pay for qualifying expenses for yourself, your spouse, and your tax dependents.  If your BF is your dependent, you can use your HSA funds to pay for his expenses.

Your BF can't contribute to an HSA if he can be claimed as someone else's dependent.  Even if you decided not to claim him, he must check the box that says he can be claimed.  Failing to do this would result in him receiving improper tax benefits and could be considered tax fraud.  

Your BF needs to file a tax return this year.  He must report the HSA contributions.  If he leaves the contributions in the account, he will be assessed a 6% penalty this year and every future year that the excess remains uncorrected.  Or, he can have the excess contributions removed by the HSA bank and returned to him, before the April 15 deadline.  But this must still be reported on his tax return.  If he does not file, he may receive a bill for tax and penalties for the excess contributions.  Also, if he does not file, the excess contributions in the account may be subject to additional taxes and penalties in the future, since the IRS will not have a record of how he corrected the excess contribution issue.  

[boco2023]

Thank you, @Mike9241, @BillM223, @Opus 17 . It does make sense. Great information! I have not claimed him as dependent (yet), and based on your responses it seems I should not claim him as dependent. He didn't have any income in 2023. Does he still need to file taxes, despite having contributions made (by others) to his HSA in 2023? (he also got the Form 1099-SA).

[Opus 17]

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@boco2023 wrote:

Thank you, @Mike9241, @BillM223, @Opus 17 . It does make sense. Great information! I have not claimed him as dependent (yet), and based on your responses it seems I should not claim him as dependent. He didn't have any income in 2023. Does he still need to file taxes, despite having contributions made (by others) to his HSA in 2023? (he also got the Form 1099-SA).

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Did you read my answer?  All your questions are already answered.

1. If he qualifies to be claimed as a dependent by someone else, he must answer "yes, I can be claimed as a dependent".  That will disqualify his contributions, even if you don't actually claim him.  Anything else is improper and could potentially be considered fraud. 

2. Under the law, he made the contributions since it was his account. 

3. He must file to report the contributions.  He must also either a) pay a penalty for making excess contributions, or b) remove the excess contributions before April 15. This is a special withdrawal, not a regular withdrawal, and he needs to contact the bank about it.  The IRS gets copies of his contribution record, and if he does not report them (and either also report removing them, or pay the penalty), the IRS may send a letter asking for more information or just assessing the tax and penalties. 

[boco2023]

@Opus 17 Thank you for the clarfication.