Marital or Dependent Status May Affect HSA Contribution Limit, Qualified Medical Expenses
By Chad Neumann, CIP, CISP, CHSP
We have a client who lives with, but is not married to, her child’s father. Both have an HSA-compatible HDHP through their employers and are HSA-eligible. How much can each contribute to an HSA?
Because the health savings account (HSA) contribution limit depends on the type of high deductible health plan (HDHP) coverage—either family or self-only—the type of coverage will determine the contribution limit. In your scenario, , because the couple is not married, each individual could contribute up to the limit of the coverage that each one has. So if both individuals have family coverage, they could each contribute as much as the family contribution limit for the year ($7,200 for 2021; $7,300 for 2022) to their own HSA. If one individual has self-only coverage, that individual can contribute only up to the self-only limit ($3,600 for 2021; $3,650 for 2022). Family coverage is defined as any coverage that covers more than one individual. This could be individual and spouse, individual and children, or individual and spouse and children. Self-only coverage is any coverage that covers only the individual.
If, on the other hand, your client was married and had family HDHP coverage for both her and her spouse, both individuals would be treated as having family coverage and one family contribution limit would apply to both individuals. The one family limit could be split between both individuals.
We have a client who has been contributing to an HSA, but she and her spouse recently finalized their divorce. How will that affect her HSA contribution limit?
It’s important to remember that the contribution limit is based on the type of HDHP coverage the HSA owner has and the months in which the HSA owner has that coverage.
If your client changes from family coverage to self-only coverage after the divorce, she would need to determine the type of coverage on the first of each month. For each month she has family coverage on the first day of the month, your client would be eligible to contribute up to the family limit divided by 12. For each month she has self-only coverage on the first day of the month, your client would be eligible to contribute the self-only limit divided by 12.
A client finalized his divorce in February of this year. In May, his daughter, age 10, had to go to the doctor. He received a bill for $300 for that doctor visit and would like to pay the bill from his HSA. Can he still use his HSA to pay for his daughter’s medical expense?
That depends. Qualified medical expenses are expenses incurred by the HSA owner, the HSA owner’s spouse, all dependents that the HSA owner claims on his tax return, or any person the HSA owner could have claimed but for the fact that
the person filed a joint return,
had a gross income of $4,300 or more, or
the HSA owner or HSA owner’s spouse, if filing jointly, could have been claimed as a dependent on someone else’s tax return.
If he is still claiming his daughter as a dependent on his tax return, then, yes, her expenses would have been qualified. If his former spouse is now claiming his daughter as a dependent on her tax return, then maybe not.
In IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, it states “…a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child’s exemption.” So, even though the former spouse may be claiming the daughter as a dependent on her tax return, your client may still be eligible to take a distribution from the HSA to pay the medical expense. If the period of divorce, separation, or living apart is more than six months, this special rule does not apply. Keep in mind that both spouses cannot take a distribution to pay for the same expense; that is not allowed.
The daughter of one of our clients, age 22, just finished college and has started her first job. Because she is under age 26, our client has decided to continue to list her as a dependent on his HDHP. It’s our understanding that because she is not a tax dependent, he can’t pay for her medical expenses from his HSA. Is there a way to still use HSA assets to pay her potential medical expenses?
Yes. Because his daughter is covered under his HDHP and is not claimed as a dependent on his tax return, she would be eligible to establish and contribute to an HSA. Also, because she has family coverage under his plan, she would be eligible to contribute at the family limit. In addition, because there are no income limitations on making contributions and contributions can be made by anyone, if your client wanted to, he could contribute to his daughter’s HSA.
