Form 8889 Part 1 line 3 is calculated incorrectly. Would like to know how to fix.
For 2025 I had a HDHP (necessary for an HSA) from Feb to Dec. I should be eligible for 11 months of HSA contributions unless the "Last-month rule" and it's "testing period" are passed which in my case, they aren't due to not having a HDHP the following 12 months.
I tell the software I had no coverage Jan, but no matter what I've said to the software, it's seemed to assume the Last-day rule and doesn't allow me to have line 3 on form 8889 be calculated for 11 months. On 8889 Part 1 line 3 it's telling me I can contribute the max $4,300 instead of instead of the correct 11 months of contributions at $3,941.67 (rounded on the 8889). Is there a way to fix this? I would love to be able to manually adjust line 3 to 3,942.
If you want to dive deeper into what I did with the software, if I answer Yes to "Were you an eligible individual for HSA contributions as of December 1, 2025?" which is correct in my case, the software doesn't ask me what months I was insured and I'm pretty certain it's assuming the Last-month rule. If I say no, it brings me to a page asking "Tell us about your monthly coverage" where it asks which months I'm specifically covered. I check not covered for Jan and self only covered for the other 11 months, but I still get the same outcome so it still must be assuming the Last-day rule. Funny enough writing all this, I just thought of way to finesse the software into the correct 8889. If I change Jan through Nov to covered and Dec to no coverage, the software can't assume the Last-day rule anymore and the correct 8889 is now generated where line 3 correctly says 3,942.
Ideally I would prefer to input all correct details into the software to be accurate. I don't like to mess around with the IRS. I'm not sure if inputting the wrong covered month to freetaxusa will matter though in terms of data on the 1040. If anyone knows how to fix this issue by entering the correct months (Feb to Dec), I'm still very interested in learning / knowing.
Answers
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Hello Taxy,
The $4,300 on Form 8889 line 3 is actually correct based on IRS rules. Because you were an eligible individual on December 1, 2025, the last-month rule applies and your contribution limit is the greater of the pro-rated 11-month amount or the full annual limit. Since $4,300 is greater than $3,941.67, the IRS requires $4,300 to be used on line 3. You can see this rule explained in the Form 8889 instructions here:
The testing period does not reduce your line 3 amount. Instead, if you did not maintain HDHP coverage through December 31, 2026, you would report the excess contribution amount as income with a 10% additional tax on your 2026 tax return using Form 8889 Part III at that time.
The workaround you found would actually give you a lower deduction than you are entitled to, so we would not recommend using it. The software is calculating your 2025 return correctly.
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Hi Morgan, would it be the same process if I had excess contributions? I’m unable to submit the excess withdrawal because I had coverage in December. However, I know I will not be eligible this next calendar year. What do you recommend?
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Hi Karina,
You're right that the process is similar, but it's worth clarifying what's actually happening here. Because you had HDHP coverage on December 1, 2025, the last-month rule applies and your full $4,300 contribution is valid for 2025 -- there is no excess on your 2025 return, which is why there's nothing to withdraw right now. The $4,300 is the correct and allowable amount.
The consequence of failing the testing period shows up on your 2026 tax return, not your 2025 return. Here's how it works:
- When you file your 2026 taxes, you'll complete Form 8889 Part III.
- Part III calculates the amount that "wouldn't have been made except for the last-month rule" -- which is the difference between your full $4,300 contribution and what your prorated 11-month limit would have been ($3,941.67), so roughly $358.33.
- That $358.33 gets added to your 2026 gross income.
- You'll also owe a 10% additional tax on that same amount (about $35.83), reported on Schedule 2.
The IRS explains this in Publication 969 here:
So, to summarize: your 2025 return is correct as-is with $4,300 on line 3. You don't need to do anything on your 2025 return to account for the future testing period failure. Just be prepared to complete Form 8889 Part III when you file your 2026 return next year.
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