HSA last month rule failed - California.

oldcup88888
oldcup88888 Member Posts: 1 Newcomer
in Filing my taxes

Hi all,

My wife had HSA eligible plan from Sep 2024 - Aug 2025. She did a full contribution using the last month rule for 2024. I'm aware that we needed to pay the 10% penalty for the excess 8 month of contribution for failing the test period. But I could not find anywhere to do that. I can see the form 8889 is supported, but Freetax USA doesn't ask me any questions regarding the contributions from last year. Please advise. Thank you so much.

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Answers

  • TriciaD
    TriciaD FreeTaxUSA Agent Posts: 44 image
    Hello oldcup88888,

    Thank you for your question! You are correct — a failed testing period must be reported on Form 8889, Part III. The good news is that our software supports this calculation. Here’s how to navigate to the correct section:

    1. Go to Deductions / Credits > Other Deductions / Credits > Health Savings Account (HSA) (1099-SA).
    2. Proceed through the screens until you reach the question asking whether your spouse or anyone else made contributions to her HSA for 2025 and select Yes.
    3. On the next screen, when asked if she was an eligible individual for HSA contributions for all of 2025, select No.
    4. You will then be asked about her 2024 HSA eligibility. Select Yes to confirm she was eligible on December 1, 2024.
    5. Enter the type of coverage your spouse had on the first day of each month during 2024.
    6. Continue through the remaining screens, providing information as applicable.

    Once you indicate that she did not remain eligible during the testing period, the software will automatically calculate the portion of 2024 contributions that must be included in 2025 taxable income and apply the 10% additional tax on Form 8889, Part III.

    Important note: If your situation involves line 19 of Form 8889, Part III (Qualified HSA Funding Distributions), that specific line is not supported in our software and would require filing elsewhere. For the standard last-month rule failure, line 18 applies and is fully supported.

    If you have any additional questions, please sign in to your FreeTaxUSA account and contact Customer Support. They will be happy to assist you further.

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