As you likely know, the IRS regulates HSAs. They set the rules regarding tax treatment of HSAs, including the definition of a dependent. Health insurance carriers define “family” as the employee and his/her spouse and children. The IRS defines “family” as the taxpayer plus one more person. And that person must pass the test of a “dependent” from an IRS perspective.
A dependent is defined under Code section 152. The Code has a two-prong definition of dependent:
- Qualifying child – a qualifying child is any child (son, daughter, brother, sister, niece, nephew, grandchild) who passes three tests: 1) will not be age 19 during the year (or 24 if a full-time student). An exception is made for a disabled “child” who is considered as satisfying the age requirement despite actual age; 2) has the same principal place of residence as the taxpayer for more than half the year; and 3) does not provide over half of his/her own support.
- Qualifying relative – a qualifying relative is any individual who meets four criteria: 1) is not a qualifying child of any other person; 2) has income less than the exemption amount ($3950 for 2015); 3) receives over half of his or her support from the taxpayer; and 4) if a non-relative, resides with the taxpayer the entire year.
Why is the IRS dependent definition important to you?
If you have dependents that meet the above tests, then you may use your HSA funds to pay for their medical, dental and vision expenses. And you may contribute more to your HSA account. In 2015, you may contribute $6650 vs. $3350 if you were single. Contributions may be deducted “above the line” on your tax return or made pre-tax if you are enrolled in a flex plan at work.
If you have any questions, contact us at email@example.com or 800.617.4729.