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Wife moved from self HDHP to husbands employer medical coverage causing negative $1000 from my refund. What do I do?

Forum|Forum|7 years ago
June 3, 2019
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From year 2016, my wife is having her HSA with a HDHP (self). She continued to be on her HDHP until June 2017. From July 2017, I added her on my employers plan. But TurboTax assumes that my wife had break on her health coverage and deducting nearly $1000 from my refund. What do I do?

When I worked on the HSA section, I answered Yes to "I was covered by an HDHP during at least one month during 2017" and selected "I had different plan types at different times of the year".

On the next page, I chose "Self Only" from January 2017 to June 2017 and selected "None" from July 2017 to December 2017.

If I select "Family Plan", instead of "None", then nothing is deducted from my refund.

The HSA bank account is still open and we did not contribute for year 2017. ($1700 allowed for Jan 2017 - June 2017)

Screen shots attached. Please help.

TurboTax Deluxe Online

Best answer by BillM223

The type of HDHP coverage that your wife had is a function of whether or not she was alone on that HDHP policy or if someone else (you or a dependent) was on the policy as well. "Family" to the IRS means "Self" plus at least one other person, no matter what the insurance company calls it.

But this is not something just get to select at tax time - you have to confirm with her HDHP provider (or her benefits coordinator) what kind of HDHP policy she had.

Based on your description, it sounds like you entered your information correctly.

The issue is that the annual HSA contribution limit in her case is pro-rated by the number of months she was under the HDHP coverage. If she had Self coverage and is under 55, then the limit is $3,400 times 6 months divided by 12 months, or $1,700. Any amount that she contributed over $1,700 would be an excess contribution that would be added to line 21 on the 1040 as Other Income.

You may have another situation: if your wife took advantage of the "last-month" rule in 2016, then she was required to stay in the HDHP for all of 2017. Clearly she didn't.

The last-month rule means that if you have HDHP coverage on December 1 (of 2016, in this case), she could contribute based on the full annual limit, not based on the number of months. Suppose she started the HSA in July 2016. She could have contributed the full $3,400 in 2016 because she was covered on 12/1/2016.

However, since she did not stay under HDHP coverage for the "testing" period (i.e., all of 2017), she has "failure to maintain HDHP coverage" and will be penalized for overcontributing in 2016. I am thinking that this is also part of your $1,000 change in tax, because the change due to overcontributing in 2017 because of leaving HDHP coverage doesn't seem large enough to cause that number.

B

BillM223Answer

The type of HDHP coverage that your wife had is a function of whether or not she was alone on that HDHP policy or if someone else (you or a dependent) was on the policy as well. "Family" to the IRS means "Self" plus at least one other person, no matter what the insurance company calls it.

But this is not something just get to select at tax time - you have to confirm with her HDHP provider (or her benefits coordinator) what kind of HDHP policy she had.

Based on your description, it sounds like you entered your information correctly.

The issue is that the annual HSA contribution limit in her case is pro-rated by the number of months she was under the HDHP coverage. If she had Self coverage and is under 55, then the limit is $3,400 times 6 months divided by 12 months, or $1,700. Any amount that she contributed over $1,700 would be an excess contribution that would be added to line 21 on the 1040 as Other Income.

You may have another situation: if your wife took advantage of the "last-month" rule in 2016, then she was required to stay in the HDHP for all of 2017. Clearly she didn't.

The last-month rule means that if you have HDHP coverage on December 1 (of 2016, in this case), she could contribute based on the full annual limit, not based on the number of months. Suppose she started the HSA in July 2016. She could have contributed the full $3,400 in 2016 because she was covered on 12/1/2016.

However, since she did not stay under HDHP coverage for the "testing" period (i.e., all of 2017), she has "failure to maintain HDHP coverage" and will be penalized for overcontributing in 2016. I am thinking that this is also part of your $1,000 change in tax, because the change due to overcontributing in 2017 because of leaving HDHP coverage doesn't seem large enough to cause that number.

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M

micjohnsonAuthor

Hello TurboTaxBillMc ,

Thank you very much for your time to answer our question. Appreciated.

Actually, this HDHP was opened 6 years back. Initially, myself, wife and kids were on the HSA plan. Then got my full time employment and myself, kids were joined the employers health plan. Due to the employers restriction, my wife was unable to join my employers plan so she stayed with the HSA. As of 2016, she was not on the last month rule. She was enrolled in the HSA from year 2012.

I am not sure why do we need to pay the penalty.