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Why is Turbo Tax not asking me about HSA last month rule based contribution?

Forum|Forum|7 years ago
June 5, 2019
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I made a contribution to HSA in 2017 for 2016 based on last month rule. However Turbo Tax never asks me about it. As a result it is considering that contribution as excess contribution and telling me that either I should withdraw or pay tax and penalty on excess contribution. How can I tell Turbo Tax that the excess contribution it is seeing is actually for previous year?

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Best answer by AnnetteB6

If you made a contribution to your Health Savings Account (HSA) during 2017, but for the 2016 tax year, then that contribution would have been reported on your 2016 tax return.

It should not be included on the 2017 tax return even though the actual contribution was made during 2017.

However, if you did not remain an eligible individual through 2017, then that contribution for 2016 will be considered an excess contribution. Even though you were able to contribute the maximum amount bsed on the last-month rule, you must remain eligible for the following 12 months for the contribution to stand and not be considered to be excess.

Take a look at the information below from TurboTax help content if you want to know more:

Last Month Rule

Under the last-month rule, if you are an eligible individual on the first day of the last month of the tax year (December 1), you are considered an eligible individual for the entire year. You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month.

If you make contributions to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual for the entire testing period under the last-month rule. The testing period begins on the first of the last month of your tax year and ends on the last day of the 12th month following that month. Most of the time this is December 1 to December 31 of the next year.

A

AnnetteB6Answer

If you made a contribution to your Health Savings Account (HSA) during 2017, but for the 2016 tax year, then that contribution would have been reported on your 2016 tax return.

It should not be included on the 2017 tax return even though the actual contribution was made during 2017.

However, if you did not remain an eligible individual through 2017, then that contribution for 2016 will be considered an excess contribution. Even though you were able to contribute the maximum amount bsed on the last-month rule, you must remain eligible for the following 12 months for the contribution to stand and not be considered to be excess.

Take a look at the information below from TurboTax help content if you want to know more:

Last Month Rule

Under the last-month rule, if you are an eligible individual on the first day of the last month of the tax year (December 1), you are considered an eligible individual for the entire year. You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month.

If you make contributions to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual for the entire testing period under the last-month rule. The testing period begins on the first of the last month of your tax year and ends on the last day of the 12th month following that month. Most of the time this is December 1 to December 31 of the next year.

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b_puneetAuthor

Thank you for the answer. You are correct. Turbo Tax did not ask me the question because I told it that I had HDHP coverage for all of 2017. The question is only applicable if I have partial year coverage which I did for 2016. So when I did my 2016 return, TurboTax did ask me if I contributed based on last month rule. I checked my 2016 return. The full amount is reported on there. So like you said this is not really applicable 2017 return.