Adult Child and HSA tax benefit

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Hitmonchan
Posts: 47
Joined: Tue Jan 08, 2019 10:32 pm

Adult Child and HSA tax benefit

Post by Hitmonchan »

Hello,

I am an adult child (23) on parents health plan, which is a HDHP currently funded by HRA but i hope to change to HSA for 2023 (missed deadline for 2022 sadly). I just learned that adult children can have their own hsa and contribute up to the family limit ($7100). I also read that if parents want to do this they would have to do this with after-tax dollars, which is not ideal. Can the child (me) deduct the 7100 from my tax return if I fully fund an hsa under my name under my parents HDHP? I tried finding this answer somewhere but can't. Thanks and please let me know if my question is confusing.
User avatar
FiveK
Posts: 15742
Joined: Sun Mar 16, 2014 2:43 pm

Re: Adult Child and HSA tax benefit

Post by FiveK »

What does "funded by HRA" mean?

See IRS Publication 969 for the Qualifying for an HSA rules. As it says there, "If you meet these requirements, you are an eligible individual."

So yes, if you are eligible for an HSA and are covered by a family HDHP, you may deduct contributions made to that HSA - regardless of who makes the contributions. These become deductible when you fill and file Form 8889.
Topic Author
Hitmonchan
Posts: 47
Joined: Tue Jan 08, 2019 10:32 pm

Re: Adult Child and HSA tax benefit

Post by Hitmonchan »

Thanks for the reply and sorry for the late response. Talking to my father, we have an HRA that reimburses medical expenses first-dollar so before the deductible is hit. According to this article: https://www.benstrat.com/downloads/HSA- ... h-HRAs.pdf
it seems that I would not qualify for an HSA due to this. Is this correct? Thanks.
User avatar
FiveK
Posts: 15742
Joined: Sun Mar 16, 2014 2:43 pm

Re: Adult Child and HSA tax benefit

Post by FiveK »

Yes, if it is not a "limited purpose" HRA and does first dollar reimbursement for you then it makes you ineligible for an HSA.
User avatar
MP123
Posts: 4084
Joined: Thu Feb 16, 2017 2:32 pm

Re: Adult Child and HSA tax benefit

Post by MP123 »

I assume you're not a dependent (or you'd clearly be ineligible), does the HRA still reimburse your expenses below the deductible?

There can be a complex interplay between tax and insurance with HSAs.
Topic Author
Hitmonchan
Posts: 47
Joined: Tue Jan 08, 2019 10:32 pm

Re: Adult Child and HSA tax benefit

Post by Hitmonchan »

yes the hra does reimburse for items below the deductible for me as well as everyone in my family. I am not a tax dependent
Topic Author
Hitmonchan
Posts: 47
Joined: Tue Jan 08, 2019 10:32 pm

Re: Adult Child and HSA tax benefit

Post by Hitmonchan »

Hello all,
Thanks for the help so far with this. However, I think my initial question got a little lost. If we do switch over to an HSA, I know I can open my own HSA account since I am not a tax dependent. However, would the $7100 I max that account with be tax deductible on my tax returns? Thanks.
User avatar
FiveK
Posts: 15742
Joined: Sun Mar 16, 2014 2:43 pm

Re: Adult Child and HSA tax benefit

Post by FiveK »

Hitmonchan wrote: Tue Dec 14, 2021 9:21 pm If we do switch over to an HSA...?
Who is "we" in this case? By HSA do you mean "HDHP with no HRA"?
Topic Author
Hitmonchan
Posts: 47
Joined: Tue Jan 08, 2019 10:32 pm

Re: Adult Child and HSA tax benefit

Post by Hitmonchan »

we being my whole family switching over to a HDHP without an HRA
an_asker
Posts: 4903
Joined: Thu Jun 27, 2013 2:15 pm

Re: Adult Child and HSA tax benefit

Post by an_asker »

Hitmonchan wrote: Wed Dec 15, 2021 11:15 am we being my whole family switching over to a HDHP without an HRA
Re: the following that you wrote in your original post ...
I also read that if parents want to do this they would have to do this with after-tax dollars, which is not ideal.
... I don't think this is true. At least, in the sense that though they do this with after tax dollars, they can reclaim it when they file taxes. In other words, the HSA would be funded with pre-tax dollars.

The one difference is that if the HSA is withheld at the paycheck, it would also prevent social security withholding, which won't happen in the scenario you presented.

PS: this is my understanding. I am not 100% sure on this - maybe someone else will confirm/contradict.
User avatar
MP123
Posts: 4084
Joined: Thu Feb 16, 2017 2:32 pm

Re: Adult Child and HSA tax benefit

Post by MP123 »

Hitmonchan wrote: Tue Dec 14, 2021 9:21 pm Hello all,
Thanks for the help so far with this. However, I think my initial question got a little lost. If we do switch over to an HSA, I know I can open my own HSA account since I am not a tax dependent. However, would the $7100 I max that account with be tax deductible on my tax returns? Thanks.
Assuming you are an HSA eligible individual covered by a Family plan you can make a full Family contribution on your own return. Your parent(s) could also make a full Family contribution split between their combined HSAs. Funds contributed to the HSAs would be deductible on Form 8889. There is no need to run them through payroll, although that can be optimal because of escaping FICA taxes.

You'd need to get rid of the HRA to do this.
Post Reply