My client has an HDHP and an HSA on Dec 1, 2016, which she started in April 2016. It appears she is going to switch to a non HDHP in a week. The IRS web site seems to say that if you are in an HSA on Dec 1 you have to take the full year $3350 deduction and my software supports this. I have been told that this is not true. That we can choose to take the allowance for 9 months even though it is less than the full year amount. If we take the full year she is going to have to pay it back because she is required to stay in the HSA til Dec 2017. If we only take 9 months she does not have to pay back. Is anyone familiar with this?
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What? Where are you getting this info? For 2016 since she has HSA eligible plan on Dec 1 it is counted as if she had the plan the full year and can make the full annual contribution. For 2017 if she only has the qualifying play for 3 months she can contribute 3/12 of the annual allowed. Changing plans in 2017 does not cause a "pay back" of 2016 contribution deduction.Originally posted by Kram BergGold View Post -
You don't pay it back, but it is taxable and subject to a 10%. It's called Failure to Maintain HDHP Coverage under the Last Month Rule.Originally posted by kathyc2 View Post
From IRS Pub 969:
If you had family HDHP coverage on the first day of the last month of your tax year, your contribution limit for 2016 is $6,750 even if you changed coverage during the year.
Last-month rule. Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), 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.
Testing period. If contributions were made 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 during the testing period. For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month (for example, December 1, 2016, through December 31, 2017).Comment
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Well.... guess you can teach an old dog new tricks. I sure don't remember ever seeing that before. Sigh....Originally posted by Maude Lebowski View PostComment
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No worries, Kathy. Some days--most days--I wonder when this whole thing is just going to collapse under the weight of itself. I know we can't know everything, but, dang it, it's to the point where it's impossible to know everything we need to know just to deal with the actual returns we're working on. . . . and then clients go and do stuff that we don't find out about until after the fact. . . . just a vicious circle, I tell ya.Originally posted by kathyc2 View Post
Hang in there.Comment
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