Unique HSA situation

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czaj
Posts: 8
Joined: Sun Oct 04, 2015 4:01 pm

Unique HSA situation

Post by czaj » Fri Nov 18, 2016 6:25 pm

I'm looking for some advice on my wife's unique HSA situation. Here are her details for 2016:

• Age 23
• Married this year
• Solely enrolled in her father's family HDHP (coverage includes her, her parents and her younger sister)
• Won't be claimed as a dependent on her father's tax return (as we'll be filing jointly)

For me, I'm enrolled in my employer's HDHP and contribute the individual maximum.

From what I've been reading, there's a loophole such that she's able to open an HSA this year and contribute the family max ($6,750). However, it's not very clear if this is possible when an adult child is married. Is she able to contribute the family max with me contributing to an individual HSA as well?

Since we weren't aware of the loophole above, we elected for her to enroll in her employer's coverage for plan year 2017 during open enrollment with the desire to open an HSA (with employer contributions). So she'll have EO coverage on her employer's plan and I'll have EO coverage on my plan.

It's also my understanding that her father didn't remove her from his coverage for 2017 (his open enrollment has passed; cost difference doesn't matter since they would have enrolled in family coverage for her younger sister anyway). So she's going to be covered by her father's HDHP as well as her employer's HDHP. Given the above is possible, I'm assuming that she would only be allowed to contribute the individual maximum in CY 2017?

My ideal course of action for her given what I believe is true and no change in law:
• 2016: Open her HSA and contribute $6,750 (Adult child family max loophole)
• 2017: Contribute $2,900 (employer contributes $500)
• 2018-2019: Switch back to father's plan and contribute family maximum

I will continue on my employer's plan and contribute the individual maximum. (If I had known this, I would've stayed on my parents plan all along to take advantage of this loophole)

Let me know if there's anything I can clarify. Thanks in advance!

Spirit Rider
Posts: 6487
Joined: Fri Mar 02, 2007 2:39 pm

Re: Unique HSA situation

Post by Spirit Rider » Fri Nov 18, 2016 8:30 pm

I will admit that this is a unique situation. You are correct that a non-dependent adult covered on a parent's plan can contribute the family maximum to their own HSA.

However, it does not change the requirement that a couple combined can never contribute more than the family maximum limit, including any respective employer contribution(s).

She should definitely open her own HSA, but the situation would be:
    2016: Your maximum contribution $3350 - your employer contribution, her maximum contribution $6750 - (you + your employer) contribution
    2017: Your maximum contribution $3400 - your employer contribution, her maximum contribution $6750 - her employer contribution - (you + your employer) contribution
    2018-2019 Your maximum contribution $3400 - your employer contribution, her maximum contribution (family maximum contribution in effect for that year) - (you + your employer) contribution
You can decrease your contribution while increasing her contribution as agreed by the two of you provided that the total does not exceed the family maximum contribution limit.

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FiveK
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Re: Unique HSA situation

Post by FiveK » Sat Nov 19, 2016 12:23 am

See Publication 969 (2015), Health Savings Accounts and Other Tax-Favored Health Plans for more details, including
Rules for married people. If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. If each spouse has family coverage under a separate plan, the contribution limit for 2015 is $6,650...[and] the contribution limit is split equally between the spouses unless you agree on a different division.

czaj
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Joined: Sun Oct 04, 2015 4:01 pm

Re: Unique HSA situation

Post by czaj » Sat Nov 19, 2016 9:13 am

Great, thanks for the clarification. It definitely clears things up!

czaj
Posts: 8
Joined: Sun Oct 04, 2015 4:01 pm

Re: Unique HSA situation

Post by czaj » Sat Dec 17, 2016 12:07 am

So I was looking back at this and it looks like I elected both myself and my wife to contribute the individual maximum in 2017 ($3,400) [employer contribution + employee contribution], as our open enrollment periods were before I posted this.

However, I didn't realize till now that the family contribution limit is less than twice the individual limit:

Spirit Rider wrote:2017: Your maximum contribution $3400 - your employer contribution, her maximum contribution $6750 - her employer contribution - (you + your employer) contribution


Since my wife will be covered by both an individual plan and a family plan in 2017, I would think that she could contribute the $3,400, and that we aren't limited to the family limit despite her dual coverage. However, I haven't been able to find any guidance on this.

Worst-case is that we'll have to remove the excess $50.

Spirit Rider
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Re: Unique HSA situation

Post by Spirit Rider » Sat Dec 17, 2016 12:28 am

From IRS Publication 969. Rules for married people. If either spouse has a family HDHP coverage, both spouses are treated as having family HDHP coverage. The family maximum contribution limit applies.

Also, your specific circumstances (1 individual plan and 1 family plan) is covered in IRS Notice 2008-59 Q&A 17. The family maximum limit applies.

czaj
Posts: 8
Joined: Sun Oct 04, 2015 4:01 pm

Re: Unique HSA situation

Post by czaj » Sat Dec 17, 2016 9:12 am

Spirit Rider wrote:From IRS Publication 969. Rules for married people. If either spouse has a family HDHP coverage, both spouses are treated as having family HDHP coverage. The family maximum contribution limit applies.

Also, your specific circumstances (1 individual plan and 1 family plan) is covered in IRS Notice 2008-59 Q&A 17. The family maximum limit applies.


Thanks for all your replies, as they've been very helpful. I was wishful thinking.

As of now, the simplest solution to me seems to carry over the $50 excess 2017 contribution into 2018.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Unique HSA situation

Post by Spirit Rider » Sat Dec 17, 2016 11:24 am

HSA payroll deduction changes are not restricted by the normal annual enrollment period. Employers may, but are not required to allow changes to these at any time. So you should check with your employer.

Even if you cannot or do not wish to change it, carrying over the excess $50 will only cost you $3 (6℅). You will have to complete Form 5329 for the year to carry it over and assess the 6℅ excise tax and complete another Form 5329 the following year to remove the balance. Just remember to reduce 2018's contribution appropriately.

If you were to remove the excess contribution, most custodians charge something like $25 to remove the excess contribution and earnings. You would the have to include the excess contribution and earnings on Form 1040 line 21 other income.

czaj
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Joined: Sun Oct 04, 2015 4:01 pm

Re: Unique HSA situation

Post by czaj » Sun Oct 29, 2017 5:19 pm

I'm following up on this from last year as open enrollment for us is coming up.

What we did for 2017 [per Spirit Rider's recommendation]:
I had my employer decrease my contribution schedule so that total contributions were equal to the family maximum.

Follow-up question for 2018:
My wife will be staying on her father's HDHP plan (she'll be 25 for all of 2018). She will not have medical coverage through her employer, but will keep the employer's HSA custodian. Is it allowed for her to have HSA payroll deductions given her situation? I haven't been able to find any information that says she has to be part of the employer's medical coverage to participant in HSA payroll deductions. Open enrollment for her hasn't started yet, so I'm not even sure this election would be allowed since she'll be waiving medical coverage. My guess is that this wouldn't be allowed; if that's the case, we will just contribute outside of payroll and claim the deduction on our 1040.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Unique HSA situation

Post by Spirit Rider » Sun Oct 29, 2017 7:20 pm

czaj wrote:
Sun Oct 29, 2017 5:19 pm
Follow-up question for 2018:
My wife will be staying on her father's HDHP plan (she'll be 25 for all of 2018). She will not have medical coverage through her employer, but will keep the employer's HSA custodian. Is it allowed for her to have HSA payroll deductions given her situation? I haven't been able to find any information that says she has to be part of the employer's medical coverage to participant in HSA payroll deductions. Open enrollment for her hasn't started yet, so I'm not even sure this election would be allowed since she'll be waiving medical coverage. My guess is that this wouldn't be allowed; if that's the case, we will just contribute outside of payroll and claim the deduction on our 1040.
Unfortunately, the employer is required to verify "whether the employee is covered under an HDHP (and the deductible) sponsored by that employer."

See IRS Notice 2004-50, Q&A 81.

Q-81. Are employers who contribute to an employee's HSA responsible for determining whether the employee is an eligible individual and the employee’s maximum annual contribution limit?
A-81. Employers are only responsible for determining the following with respect to an employee’s eligibility and maximum annual contribution limit on HSA contributions: (1) whether the employee is covered under an HDHP (and the deductible) or low deductible health plan or plans (including health FSAs and HRAs) sponsored by that employer.

clemrick
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Joined: Wed Sep 09, 2009 8:46 pm

Re: Unique HSA situation

Post by clemrick » Mon Oct 30, 2017 8:10 am

Also, if your wife's employer has been paying the monthly service charge, your wife will probably have to pay it in 2018.

czaj
Posts: 8
Joined: Sun Oct 04, 2015 4:01 pm

Re: Unique HSA situation

Post by czaj » Mon Oct 30, 2017 8:54 am

Thanks for the replies!

I think we may have her stay on her employer's plan after all. Her plan is rather cheap, so when you add in her employer's HSA contribution, medical plan premium tax savings, HSA MED/OASDI tax savings, and HSA service charge fees, I believe we will come out ahead. I will need to crunch some numbers before we make our annual elections.

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