Tag Archives: Children

HSA Family Contribution Limit with Spouse on Medicare

This question was sent in by HSA Edge reader Tim. Feel free to email your question to evan@HSAedge.com

I have client whose wife is on Medicare. Client has parent child coverage in effect. Can client contribute full family amount of $7,000 plus $1,000 for being over 55?

Contribution Limit determined by HSA eligibility

It sounds like you are trying to determine the contribution limit for a family where the wife is not HSA eligible due to Medicare. The contribution limit depends on who is actually covered by the policy, and for what amount of time. Note that Medicare can retroactively affect your HSA coverage. Either way, the IRS test for contribution is called HSA eligibility. It contains 4 rules which are:

HSA-what-is-an-eligible-individual

If any of the above are violated, the individual is not HSA eligible and they cannot open or contribute to an HSA. It isn’t entirely clear from your email who is covered under the HSA eligible plan and who is not.

Family coverage includes the eligible individual and at least one other individual – whether they are an eligible individual or not.

Here are the valid scenarios I can think up:

1) Parent and child covered

If your client and the child are covered by the HSA insurance, you are correct in your assertion: family coverage of $7,000 + $1,000 catch up if client is 55+. This assumes the parent is HSA eligible. For example, the wife’s Medicare doesn’t cover the client, which would disqualify based on rule #1 above.

2) Parent, wife and child covered

Same as the above. This would mean your wife is covered by both Medicare and the HSA plan. She is not an eligible individual, and can’t have an HSA, but assuming the client is eligible, he plus the child count as two members which allows the family contribution limit (plus any 55+ catch up contribution).

3) Wife and child covered

If only the wife and child are covered by the HSA insurance, a strange situation develops since the wife is not HSA eligible. Based on the IRS rules in Form 969, at least one eligible individual is required to contribute to the HSA:

This is supported by Form 969, which defines self-only and family coverage. Note the specific language for family coverage and the “Other” individual who is covered:

HSA-self-only-or-family-coverage-definition

This leaves the determination based on the covered child, since the wife is not eligible due to Medicare:

If child is an eligible individual, family contribution applies (no 55+) but must go into eligible individual’s (child’s) HSA.
If child is not an eligible individual, no contribution limit seems to apply.

Likely, the above test of the child will boil down to point 4 in the eligible individual calculation: is the child is a dependent or not? Basically, “are they old enough to pay taxes?”. The result is odd, in that only the child could open the HSA and contribute the full family contribution limit (no 55+ likely applies). Of course, they would need those funds, or you would need to contribute it for them. Note that this is the scenario discussed in Your Adult Children can Fund their HSA. However, note that the parent’s could not fund the HSA in this scenario.

Covered by HSA, but no contribution limit

The above discussion displays the possible scenario where one’s family can be covered by an eligible HSA plan but they are not allowed a contribution limit. This is generally due to violating the eligible individual definition, but could take the following forms:

Husband, wife and child are covered. Wife on Medicare, and the Medicare applies to Husband. Child is a dependent.
Husband and wife have HSA eligible insurance. Wife has an FSA at work, which also covers the spouse, violating the “Other coverage” clause. (Note – in 2018 there was legislative discussion of changing this FSA rule.)
Family coverage begins on the 2nd of the month. Not eligible to contribute for that month, but can contribute going forward. Note that they have the option to make this up this missed month using the Last Month Rule.

In all of the above examples, HSA coverage exists but due to other factors, the individual has a $0 contribution limit and cannot contribute to the HSA at this time.

Note: If you want help calculating your HSA contribution and filing your taxes, please consider my service EasyForm8889.com. It asks you simple questions and fills out Form 8889 correctly for you in about 10 minutes.

Can I Use My HSA to Pay for Spouse’s COBRA Premiums?

This question was submitted by an HSA Edge reader. Feel free to send in your question today to evan@hsaedge.com.

I will be going on Medicare soon however my spouse will not be eligible until 7 months later. She will continue on COBRA coverage on my old plan. Can I use my HSA account to pay premiums entirely for her COBRA plan? Several sites I have searched on state only the amount over 10% of income like a medical deduction.

Being on Medicare does not affect how money in your HSA can be spent. One of the great things about HSA’s is that your contributions remain yours forever, so you can keep them and spend them how you like. This is true whether you change insurance, employers, or even retire and go on Medicare. The real question here is whether you can treat your spouse’s COBRA continuation coverage as a qualified expense and pay it from your HSA.

We know that HSA contributions can be a great safety net, as they can be used to pay for insurance premiums when you are receiving unemployment benefits or are on COBRA coverage. We also know that all of the benefits of your HSA extend to your spouse and dependent’s qualified medical expenses. Luckily, these two uses combine such that you are allowed to pay for COBRA coverage for your wife or dependents.

More explicitly, IRS Form 969 calls out the COBRA coverage for spouses in the “Insurance Premiums” section:

HSA-pay-COBRA-coverage-for-spouse

Thus, I see no problem with using HSA funds to pay for your spouse’s or dependent’s COBRA continuation coverage. This is another great benefit of HSA’s in that they can be used to provide for your family when they are in need or need care. As an aside, that 10% rule you mention generally applies to deducting large scale medical expenses compared to your income, which is separate (and not as useful) as an HSA.

Note: to help track your spending on eligible COBRA insurance premiums, please consider my service TrackHSA.com for your Health Savings Account record keeping. You can store purchases, upload receipts, and record reimbursements securely online.

Can I Spend HSA Funds on My Spouse or Children?

Overview

One question that pops up fairly regularly is, “On whom can I spend my HSA funds?”. You have gone through all of the right steps of selecting HDHP coverage, opening an HSA, and making contributions to your HSA. You know that you need to spend you HSA dollars on qualified medical expenses, but whose medical expenses can be paid for with HSA dollars? In other words, we are defining what is a qualified medical expense, just the “who” part.

Luckily, there are three groups of people on whom can spend your Health Savings Account. In other words, these people receive benefits from your HSA, whether they are actually on your HSA insurance or not. Per IRS Publication 969:

Qualified medical expenses are those incurred by the following persons:

You and your spouse

All dependents you claim on your tax return

Any person you could have claimed as a dependent on your tax return (see exceptions)

So while your family may not be covered by your HSA eligible insurance, they are at least covered by your HSA dollars.

You and your Spouse

Intuitively, we know that you can spend your HSA funds on yourself. Heck, you insured yourself, opened the HSA, contributed the funds; I sure hope you can spend it on yourself!

What is less known is your HSA contributions can be used on your spouse as well. This is especially true if you have self-only coverage: even if not covered by an HDHP, medical expenses spent on your spouse are considered qualified. The benefit is your spouse can consume medical care on a pre-tax bases. One partner can save funds in their HSA, and still allow the other to use those dollars.

In fact, the plan owner need not be present during the spouse’s medical spending, nor does it have to be spent with your specific HSA funds or debit card. Like all qualified medical expenses, he/she can spend with regular cash or credit card, and later reimburse themselves with pre-tax HSA dollars. Of course, in this scenario you will want to save receipts in something like TrackHSA.com to justify the expense / reimbursement, but it just shows the flexibility that Health Savings Accounts offer spouses.

Children and other dependents

In addition to your spouse, you can spend your HSA dollars on your family. This generally includes your children or any other dependents you can claim on your tax return. The IRS defines dependents as a qualifying child or relative, based on the IRS guidelines. So this could include a family member relation for whom you care. This is a great incentive for people with kids as it allows many of their medical expenses to be purchased with pre-tax dollars, which saves money. Medical expenses for your dependents count as qualified medical expense, so go ahead and use your HSA for those purchases.

People you could have claimed as dependents

The IRS includes wording that includes an additional category of people who could have been your dependents, but were not for varying reasons. The goal of this third group is to increase the people for whom spending counts as your qualified medical expenses. The IRS defines this group as:

Any person you could have claimed as a dependent on your return except that:

The person filed a joint return,

The person had gross income of $4,050 or more, or

You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s
return.

So these are not true dependents but are “candidates” for dependents but were not for various reasons. For example, if your children have a gross income above a certain threshold, they may not be considered a dependent, but the IRS allows their expenses to be qualified medical expenses for your HSA. In a similar vein, if you or your spouse can be claimed as dependents on someone else’s tax return (e.g. younger couples), the IRS waives this and allows the qualified medical expenses to occur.

HSA spending for children of divorced parents

IRS publication 969 provide specific language on how qualified medical expenses for children of divorced parents is handled:

For this purpose, 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.

Basically, they again increase the universe of people that constitute a qualified medical expense. They do this by saying, “if the parents were separated for the last year’s last 6 months, the child counts as a dependent for both for HSA’s”. In other words, either parent can use their HSA dollars for their children even if they are divorced/separated and dependent status is up in the air. The other parent’s actions regarding dependent and taxation do not affect how the other parent treats the child for qualified medical expenses on their Health Savings Account. This is a good ruling by the IRS as it allows more benefits to divorced families / children when it comes to their medical care.

————————————

Note: if you need to keep track of HSA purchases for yourself, your spouse, or your children, please consider my service TrackHSA.com for your Health Savings Account record keeping. You can store purchases, upload receipts, and record reimbursements securely online.