HSA complication

My daughter, age 23, (and under age 24 at the end of this year), finished school in Dec of last year while living at my home. I am retired and my retiree health insurance does not allow her to remain on my health plan once she is out of school. My Ex-spouse, her mother, agreed to put her on her high deductible health plan (HDHP) if I would pay the extra $200 per month that it cost her. She signed up for the family plan Jan 1, which it appeared would allow each of them to independently put up to $7000 into their own HSA account.

We assumed and planned that my daughter would get a job in another state and be independent, and therefore not be able to be claimed as an exemption.

My daughter continued to study for her medical “Board exams” while working remotely, doing mainly video editing. Her employer, in another state (her older sister actually) was happy to contribute all her earnings into the HSA account. Unfortunately my daughter has had numerous illnesses over the past 9 months. Her employer has so far contributed $3400 into the HSA account and now it is September and there is $2 left currently in it. The money has all been spent on qualifying expenses. It is doubtful that my daughter will be able to earn much more this year as she just got over pneumonia and was told she could not travel more than 1 hour trips for the next 6 months. (So much for moving across the country for work.) She continues to work remotely from home.

Now the problem. According to 2018 IRS Pub 969 in order to qualify for an HSA “You can’t be claimed as a dependent on someone else’s 2018 tax return”. (This will likely be true in also 2019.) She has been living at my home and I have contributed more than 50% of her support, so I can claim her as a dependent.

The complications of the medical industry and the insurance industry are complicated even more by the complications of the IRS.

Now what? I have a few months before the EOY to figure out if I can correct this or adapt in any way. Any suggestions? Do I need to make sure her earnings/contributions are over $4150? Or is this excluded from gross income? “Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.”

Do either of the following apply?
• Any excess contributions remaining at the end of a tax year are subject to the excise tax
• Any person you could have claimed as a dependent on your return except :The person had gross income of $4,150 or more…

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I dont get it? Would her prospective new job require her to travel extensively? Having been sick for a while over the summer is not an excuse to be unable to move and become independent.

OP didn’t ask for opinions on that. It was mentioned that the daughter has had numerous illnesses for 9 months. It sounds like it may not be a trivial matter, even before the pneumonia.

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Thanks for your comments, I can’t begin to explain all of the medical issues this child has been thru without resolution from endocrinologists, hematologists, rheumatologists, neurologists, gastroenterologists, sleep doctors etc.

Yes her mother did put daughter(dependent) on her HDHP family plan, and daughter is covered by that. My daughter has put every penny she earned this year into her own HSA. Her medical costs have eaten up all of that to this point. She has met her deductibles except for meds, dental. She lives with me and I have contributed over 50% to her support.

It would be a completely different scenario if she lived with her mother, the sponsor of the plan. She doesn’t. The rules do not allow her mother to spend money out of Mothers HSA for daughter. “The ACA requires major medical plans to cover dependents to the age of 26, but it doesn’t require these dependents to be tax dependents. Because this child is covered on a family qualified HDHP, opening a separate HSA would allow the child to contribute up to the allowed maximum family contribution of $7,000.”

It would also be a different scenario if I had a HDHP that allowed her to be on my plan, but I don’t, and the exception to the rules that allow dependents to remain on their parents plan until age 26 are excluded for my retirement health insurance.

Not sure where to look for answers to this, I have read IRS Pub 969 a few times now, among other things.

Let me summarize your problem–correct me if I am wrong.

Your daughter(call her DD) has been funneling her medical expenses through an HSA financial account and the expenses have about equaled her employer’s contributions.

You would also like to use her as a dependent to lower your taxes but you can’t because she has used the HSA.

I add this. DD wantsto use the HSA because her employer’s contributions are not counted as her income that is subject to taxes.

Are we on the same page so far?

Without getting into details, my high level thought is that it really shouldn’t matter that much that she has to pay taxes on the HSA money because she made so little throughout the year.

Have you run a tax calculator to figure out what her income tax would be if all the money that went into her HSA was actually taxed and she was claimed as a dependent? We might only be talking about a few hundred bucks.


Yes, that is correct. And also her employer also likes paying the HSA as it is pre-FICA.

My daughter will do exactly as I ask her to. Our combined goal is to keep as much money (legally) in our family, and give the government, and the health care system as little as possible. Thanks for helping me clarify that.

Great idea. I should have started with looking at the desired end result first! I just want to also stay above board with Uncle Sam.

Thanks all, for helping me re-focus. I think I have resolution for now.

The IRS Pub 969 language for “eligible” and “qualifying” for HSA is what I did not fully grasp. Daughter became eligible Jan 1. We can only determine if she is qualifying at the end of the year. She was too ill to take any classes so she was not a full time student for 5 months, so she is not a qualifying dependent (Pub 501) unless we go for “Permanently and totally disabled at any time during the year, regardless of age.”

"Permanently and totally disabled. Your child
is permanently and totally disabled if both of the following apply.
• He or she can’t engage in any substantial gainful activity because of a physical or
mental condition.
• A doctor determines the condition has lasted or can be expected to last continuously
for at least a year or can lead to death.