HSA last-month rule incorrectly applying

[BillM223]

OK, I don't know when we are going to hear back from development on this issue.

I don't want to leave you hanging.

I think you have a good argument that the example in Step 4 on page 4 of the 8889 Instructions implies that you should each get credit for the months that you had separate Self-only policies.

Unfortunately, the example is for a divorced couple who separated during the year, not for a couple who "joined" during (i.e., went from two Self policies to one Family).

However, Question 32 in IRS Notice 2004-50 could be read to support the same thought (although, irritatingly, only one spouse has Self-only coverage for part of the year). 

What TurboTax is doing is subtracting $3,450 for each of you (the amount allocated to the other spouse that you entered) from NOT the $6,900 limit for 2018, but from the $5,175 limit it calculated (I hope that is the right number - I did it from memory). You would have thought that you could allocate $3,450 to one spouse and $5,175-$3,450 to the other spouse (the calculation I first showed you). However, since it is using the amounts on the 2018 8889 that were allocated 50-50 when it didn't make any difference (you were under the last-month rule), it wasn't clear that you should have the right to reallocate the shared Family coverage.

In any case, this is a moot point. If you read the instructions and Notice 2004-50 the way I now do, then you should change the amounts allocated to the other spouse. As I noted above, if you want to have a limit for $3,450 for yourself, since TurboTax is starting with $5,175, then you should allocate to your spouse $5,175 - $3,450, or $1,725. So if you allocate to your spouse $1,725, your effective HSA contribution limit for 2018 should be $3,450 which will cover your $3,450 in contributions.

And if you enter that your spouse also allocates $1,725 to you, then her effective HSA contribution limit would be $3,450, which would cover her contributions.

This gives you a workaround.

Bear in mind that this is not the way TurboTax currently works, so you will need to document what you did and why. Also note that lying to TurboTax is not the same as lying to the IRS, if that is what it takes to do the workaround.

I do not know if or when TurboTax might change the software, so I do not want you to be left hanging. This is merely my opinion on a very gray area that does not have specific directions from the IRS. But this will allow you to make the choice and get your return out.