HSA – Health Savings Account – Turbo Tax – contribution

This article is about an error if you use Turbo Tax to get a deduction for your HSA, (Health Savings Account), and you did not have the High Deductible Health Plan for the entire year.

If you don’t have an HSA yet, don’t bother read this article, but you should learn about HSA’s because I think they benefit almost anyone in our country at this time.

Here is how the error comes about. If I am understanding the U.S. Department of Treasury properly it should go like this. If you have an HSA, and you qualify for the HSA deduction in every other way, and you had your High Deductible Health Plan in place by December 1, 2007, then you should get 12 months of deduction from your HSA. If I understand this correctly, you should be covered even if you did not make your contribution until the last possible second, and you had your HDHP (High Deductible Health Plan) in place by December 1, 2007.

When you are filling out TurboTax it asks you how long you had the High Deductible Health Insurance. If you only had it one or two months at the end of the year, and you enter a 1 or a 2, then you will only get 1/12th or 2/12ths of the deduction. If you go to forms view, it even explains on form 8889, which is called the HSA deduction limits worksheet as follows;

2. Enter the number of months you had this high deductible health plan. If you were in the plan on Dec. 1st. you are considered to be in the plan the full year.

If you enter 12 at this point, then you get the full years deduction. As far as I can tell, this is what you are supposed to do, and what the Department of the Treasury wants you to do.

If I understand things correctly, if you did not have your HSA on Dec. 1st, but you had it before then for a period of time, then you get some proportion of the months of the year. Also, if I remember correctly, the Dec. 1st coverage type deduction only applies if you keep the High Deductible Health plan until the end of 2008.

Read the Department of the Treasury and the IRS’s statements on these. I can not tell you how much I learn from going and reading their sites compared to what accountants tell me. (no offense accountants!)

I actually have met Bill Harris and know him a bit. He is the guy who started Chipsoft, which became Turbo Tax, and then got bot by Intuit who owns the program now. They are great guys and have made an amazing product. I have noticed that when the IRS changes something, such as the HSA’s which are relatively new and often changing, that Turbo Tax takes a few years to get everything real smooth with the new thing.

15 years ago, when they operated out of San Diego I remember that just as tax season hit all the staff went into massive overtime mode to try to correct all of the issues that come up with the new tax laws. So, thanks for the great product guys, and please fix this little bug.

If by any chance I am incorrect on my understanding of the tax code on this, then please someone scream and correct me!



By the way, this is neither accounting advice, tax advice, or legal advice, and it sure as heck aint medical advice. I am just recording what I saw and what I think. Please check with your accountant or attorney or better yet the IRS’s tax code before acting on what you read above. (Same with the below!)
UPDATE ON 3-21-08

So I got some more 1099’s that arrived way late from some insurance companies that had paid us money. There were 4 more to be exact. I opened up Turbo Tax and went to the area in my Schedule C (for those with businesses), to enter the 1099’s. When I tried to enter the next one something weird happened, and the numbers did not make sense. It took me about 15 minutes to figure it out. What was happening was that as I would enter another 1099 misc, Turbo Tax would bump off one of the old 1099 Miscs as if it had never been entered. Now the average small business owner who really does not know taxes, and accounting well would have missed this. After entering 4 1099’s worth about $10,000 total, they would have thought that they were getting back another $3,000 or $4,000 they would not have been due. The IRS might have even refunded it, but then found it in an audit later. I guarantee that with this bug there will be many small businesses who receive lots of 1099-miscs under reporting their income.

I for one would like a full refund of my Turbo Tax costs this year if anyone at Intuit reads this. By the way, I just updated my Turbo Tax software about 30 minutes before the bug occurred.

So what do you do? I could not get the easy steps in Turbo Tax to fix this, so I had to go into forms view which most people don’t use. I then asked it to show my return, and I took a look at what 1099 miscs had shown up. I then asked it to add more 1099 miscs, and entered each of them manually. This is way beyond the average small business guy doing his taxes. I would think this will happen mostly to doctors doing their taxes with turbo tax, but could also effect people like truck drivers or others who get paid from a lot of sources.

Check with your accountant before acting, and happy trails!


1 Reply to “HSA – Health Savings Account – Turbo Tax – contribution”

  1. I believe you are absolutely correct. The tax law changed last year, and apparently TurboTax has not updated their software. TurboTax is telling me that I had $1,187 in excess contributions because I had my insurance for only 7 months, but this is wrong; I applied your solution of entering 12 months instead. I will contact TurboTax about this screw-up, but based on the past responsiveness of their parent company, Quicken, I am not optimistic that they will act quickly on this.

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