HSA-Both Spouses

[Debst99]

I am preparing a tax return for two spouses that both have HSA's.  The first spouse I enter as Family, but whatever I do to enter the 2nd spouse as self-only, it changes it to Family.  Last year I had to have them send it thru the mail, because I couldn't do overrides.  This year I tried to do the return from scratch, instead of a transfer, and it did the same thing.  It is even worse.  Not only does that 2nd spouse get an additional tax on Form 5329, she only gets half of the additional contribution she made over what the employer made (which she didn't do before). 

Can anybody help me?  I am already deducting off their fee the cost of sending their return last year priority mail fees plus extra.

[rbynaker · Accepted solution]

When in doubt, read the directions:

https://www.irs.gov/pub/irs-prior/i8889--2020.pdf

From page 3, bottom half of center column:

How To Complete Part I
Complete lines 1 through 13 as
instructed on the form. However, if you,
and your spouse if filing jointly, are both
eligible individuals and either of you has
an HDHP with family coverage, you
both are treated as having only the
family coverage plan. Disregard any
plans with self-only coverage.

Also, you should be familiar with the rules for line 6, starting on page 4.

Divide the refigured
contribution limit from Step 1 equally
between you and your spouse, unless
you both agree on a different allocation
(such as allocating nothing to one
spouse).

Translation: Both spouses share one $7,100 limit.  If one or both spouses are over 50 55+, they each get their own additional contribution limit amount added after "agreeing on" splitting the $7,100 (assuming 12 months or December 1st coverage).  If the total contributions to both HSAs exceed the age-adjusted limits then you have an excess contribution problem.

Rick

Edit: To correct age limit.

[qbteachmt]

Don't forget about this part: "Not only does that 2nd spouse get an additional tax on Form 5329, she only gets half of the additional contribution she made over what the employer made (which she didn't do before)."

Instructions: "Employer contributions.

You must reduce the amount you, or any other person, can contribute to your HSA by the amount of any contributions made by your employer that are excludable from your income. This includes amounts contributed to your account by your employer through a cafeteria plan."

It seems there is going to need to be a corrective distribution or perhaps they can apply it to this year.

I also like "consumer grade" instructions, such as:

https://www.kitces.com/blog/health-savings-account-both-spouses-coordination-limits-high-deductible-...

"For spouses covered by separate self-only HDHP plans, each can contribute up to the maximum, self-only limit to their respective HSAs, but they can’t make up for any contribution shortfalls of the other spouse.

Sometimes, one spouse might have self-only HDHP coverage and the other an “employee-and-children” family HDHP (which does not offer coverage for the employee’s spouse). This can be cost-effective for couples with children, as family HDHPs sometime provide for “employee and children” coverage that is less expensive than family plans that include both spouses. In this situation, the spouse with self-only coverage is limited to the self-only HSA contribution amount, and the spouse with family coverage can contribute up to the family limit. But while the total between spouses cannot exceed the family limit, the spouse with the family plan can make up for any contribution shortfall of the spouse with self-only coverage.

In rare cases, both spouses may each opt for separate HSA-eligible family HDHPs through their employers (perhaps because of different in-network doctors offered by each plan). Again, the total contribution between spouses may not exceed the annual family limit, but in this situation, both spouses have the ability to compensate for any contribution shortfalls of the other, or to simply choose which spouse’s HSA it makes sense to fund first."