Form 8889 Not Calculating Correctly for My Situation

Question

We are using the desktop version of TurboTax Home and Business. Both my wife and I are over 55 with HSA accounts. We had a family HDHP from Jan - May 2023 tied to my HSA account, then I switched to Medicare coverage, while my wife switched to an individual HDHP from Jun 2023 – Dec 2023.

As a family, we should be eligible to contribute $8,750 to our HSA accounts for 2023. I have contributed $3,645.83 to my account (family limit prorated over 5 months). My wife should be able to contribute the difference ($5,104.17) to her account. However, when I enter these amounts in the software, TurboTax is indicating we made an excess contribution of $2,118, and the program is attempting to charge us an extra 6% tax.

I am pretty sure that my numbers are correct, and TurboTax is making a calculation error here. How do we get this resolved?

dmertz · Accepted Answer

The example provided is from the section your reference. The full text is below:

• If you are not treated as having family coverage for each
month, use the following steps to determine the amount to
enter on line 6.

Step 1. Refigure the contribution limit that would have
been entered on line 5 if you had entered on line 3 the total of
the worksheet amounts only for the months you were treated
as having family coverage. When refiguring line 5, use the
same amount you previously entered on line 4.

Step 2. Divide the refigured contribution limit from Step 1
equally between you and your spouse, unless you both agree
on a different allocation (such as allocating nothing to one
spouse).

Step 3. Subtract the part of the contribution limit allocated
to your spouse in Step 2 from the amount determined in Step
1.

Step 4. Determine any other contribution limits that apply
for the tax year and add that amount to the result in Step 3.
Enter the total on line 6.

Example. In 2023, you are an eligible individual and have
family HDHP coverage. In March, you divorce and change
your coverage as of April 1 to self-only. Neither you nor your
ex-spouse qualify for the additional contribution amount. Your
ex-spouse continued to have family HDHP coverage and was
an eligible individual for the entire year. The contribution limit
for the 3 months you both were considered to have family
coverage is $1,937.50 ($7,750 × 3 ÷ 12). You and your
ex-spouse decide to divide the family coverage contribution
in the following manner: 75% to your ex-spouse and 25% to
you. Your contribution limit for 9 months of self-only coverage
is $2,887.50 ($3,850 × 9 ÷ 12). This amount is not divided
between you and your spouse.

Because you are covered under a self-only policy on
December 1, you will show $3,850 on line 6 (the greater of
either (a) $3,371.87 ($1,937.50 family coverage + $2,887.50
self-only coverage – $1,453.13 spousal allocation) or (b) the
maximum amount that can be contributed ($3,850 for
self-only coverage)). Your ex-spouse would show $7,750 on
line 6 (the greater of either (a) $7,265.62 ($1,937.50 family
coverage for the 3 months prior to the divorce + $5,812.50
family coverage maintained after the divorce – $484.38
spousal allocation) or (b) the maximum amount that can be
contributed ($7,750 for family coverage)).

Yes, the instructions are a bit convoluted.

The calculation of your wife's maximum contribution is done before the allocation of the family limit between spouses. With none of the family limit allocated to you, your wife's limit would be $6,475, the greater of the $6,475 calculated using the worksheet or $4,850 under the last month rule. The portion of the family limit that is allocated to you, $3,229, must then be subtracted from $6,475, resulting in a maximum contribution for your wife of $3,246.

dmertz · Answer

"My wife should be able to contribute the difference ($5,104.17) to her account."

That's incorrect. She did not have family coverage the entire year. You allocated all of the prorated amount for family coverage to your contribution, so I calculate wife's maximum contribution for the remainder of the year with self-only coverage as:

$3,850 * 7 / 12 + $1,000 = $3,245.83. (rounds to $3,246)

Because she is over age 55 and was covered the entire year, she gets the full $1,000 catch-up. This still doesn't quite agree with TurboTax saying that there is an excess contribution of $2,118. Perhaps you entered something differently than you described.