HSA contributions/distributions without HDHP coverage for 2017

[skdoorn12]

Client was told by bank that he qualified for an HSA account that he then set up in January 2017. Client and family were members of a Medishare healthcare cost share program for the entire year. This is not an HDHP plan and as such, the client and family did not qualify for an HSA.

In 2017, they contributed the max family amount of $6,750. Distributions were taken from the HSA for medical expenses leaving a $0 balance at year-end.

When I told the client he did not qualify for the HSA, he went to the bank and they agreed but said nothing more needed to be done.

My concern is 1099-SA was issued showing distributions rec'd from the HSA. And 5498 may be issued showing 2017 contributions to the HSA.

I have never run into this before. Not sure how/what to report on the tax return. Any advice?

Thanks.

[kathyc2]

Client was told by bank that he qualified for an HSA account that he then set up in January 2017. Client and family were members of a Medishare healthcare cost share program for the entire year. This is not an HDHP plan and as such, the client and family did not qualify for an HSA.

In 2017, they contributed the max family amount of $6,750. Distributions were taken from the HSA for medical expenses leaving a $0 balance at year-end.

When I told the client he did not qualify for the HSA, he went to the bank and they agreed but said nothing more needed to be done.

My concern is 1099-SA was issued showing distributions rec'd from the HSA. And 5498 may be issued showing 2017 contributions to the HSA.

I have never run into this before. Not sure how/what to report on the tax return. Any advice?

Thanks.

As long as you don't take a deduction for the contribution it should be fine. You will need to show the distribution on 8889 as the 1099SA is a matching item. Very small chance of receiving a CP notice on the 5498, but if received it would be easily resolved by an explanation letter.

[Rapid Robert]

As long as you don't take a deduction for the contribution it should be fine.

But don't forget any earnings that were distributed, those are taxable.