This is a really interesting case that highlights how family arrangements have evolved! I went through something similar when my adult nephew moved into our guest house with his daughter after his divorce. The IRS Publication 501 specifically addresses this - what matters is whether you're maintaining separate households economically, not whether you share the same street address. Since your ex-SIL has his own bank account, pays for his children's expenses independently, and contributes to household costs through services (childcare and maintenance), he's essentially operating as a separate economic unit. One tip from my experience: I'd suggest documenting the fair market value of the childcare services he provides. In our area, quality after-school care runs about $15-20/hour. If he's watching your kids even 10 hours a week, that's $600-800/month in equivalent rent. Combined with his direct expenses for his kids, he's likely well over the "more than half" threshold for household support. The key is being able to show the IRS that despite sharing a roof, you're running two distinct households with separate finances and responsibilities. Keep good records and you should both be fine filing HOH!

I'm dealing with a very similar situation right now! My brother and his teenage son moved into our converted garage apartment after his job relocation, and we've been wondering about the same HOH question. What really helped me understand this better was looking at IRS Publication 501, which explains that the "household" test isn't about the physical structure but about whether you're maintaining separate economic units. The fact that your ex-SIL pays for his kids' expenses, has separate accounts, and contributes equivalent value through childcare and maintenance really strengthens his case for HOH status. One thing I learned from my research is that the IRS has actually ruled favorably in several cases where family members shared addresses but maintained separate households. As long as you can document that he's covering more than half the cost of supporting his "household" (including the fair market value of his service contributions), you should both be fine filing as HOH. The key is just making sure you both have good documentation - receipts for his kids' expenses, some record of the childcare hours he provides, and maybe a simple written acknowledgment of your arrangement. From everything I've read and researched, sharing an address while maintaining separate economic households is completely legitimate for HOH purposes.

Has anyone ever done this through TurboTax? I have a similar issue but from 2023 and I'm wondering if I can just fix it when I file my taxes this year.

I had almost the exact same situation with a 2019 HSA excess contribution that I didn't catch until 2022. The key is being persistent with your HSA provider - don't accept "we can't do that" as an answer. Here's what worked for me: I called Optum (same provider as you) and specifically asked for their "Tax Compliance Department" rather than regular customer service. The regular reps often don't understand the rules for correcting prior-year excess contributions. When I got through to tax compliance, they knew exactly what I was talking about and processed my excess contribution removal within a week. You'll need to specify on the form that this is for tax year 2020, and make sure you request the withdrawal of just the excess amount ($800 in your case) - don't include any earnings on that amount unless you want to pay taxes on those earnings. The good news is you won't need to amend any prior returns, and you'll stop paying that 6% penalty going forward. One tip: if they still give you pushback, mention IRS Revenue Ruling 2004-41 which specifically addresses corrections of excess HSA contributions from prior years. That usually gets their attention!

Don't forget you can also spread the income from a qualified disaster distribution over 3 years! So if you qualify for the disaster exception, you could include just 1/3 of the distribution in your income this year, and the rest in the next two years. Helps with the tax hit.

The 3-year income spreading option is still available for qualified disaster distributions, not just COVID-related ones! This applies to distributions from retirement plans due to federally declared disasters. You can elect to include the distribution in income ratably over the 3-year period beginning with the year of distribution. To do this, you'll need to file Form 8915-F (Qualified Disaster Retirement Plan Distributions and Repayments) along with your return. This form lets you specify how much of the distribution to include in each year's income. Since you withdrew $13,500, you could potentially include $4,500 in income each year for three years instead of taking the full tax hit this year. Just make sure your hurricane situation qualifies as a federally declared disaster in your area before electing this option. The IRS has specific requirements about timing and geographic areas that qualify.

Just to clarify something that might be confusing from the other responses - you absolutely DO need to report that $1,200 as taxable income on your federal return, regardless of whether you itemize deductions or take the standard deduction. The gambling winnings get reported as "Other Income" on your 1040. The loss deduction piece is separate and optional - you can only deduct gambling losses if you itemize deductions AND only up to the amount of your winnings. So if you normally take the standard deduction (which most people do), you'd pay taxes on the full $1,200 and wouldn't be able to deduct that $300 loss. Make sure you received the W-2G form from the casino when you collected your winnings - they're required to give it to you at the time of payout for slot wins of $1,200 or more. You'll need that form to complete your tax return. If you didn't get it or lost it, contact the casino's player services department to get a copy.

One thing that helped me when I was in a similar situation was keeping track of the exact time and date of both my losses and winnings during that casino visit. Since you mentioned losing $300 before hitting the $1,200 jackpot all in the same trip, you might want to check if your player's club card tracked those transactions automatically. Many casinos keep detailed records of your play when you use their rewards card, and you can often request a win/loss statement from them that shows all your activity for that day. This can serve as official documentation for both your winnings and losses, which is really helpful if you do decide to itemize deductions. Even if you end up taking the standard deduction, having that documentation is good to keep for your records in case the IRS ever has questions about your return. Also, don't forget that if any taxes were withheld from your winnings (which sometimes happens on larger jackpots), that information should be on your W-2G form and you can claim those withholdings as payments made toward your tax liability.

Has anyone actually gotten an IRS penalty for HSA over-contributions before? I'm wondering how strict they are about this stuff. I think I might have over-contributed last year but never fixed it and haven't heard anything.

I went through something very similar last year! You're absolutely right that you can still contribute that $150 to get back to your maximum allowable contribution for 2024. As others mentioned, you have until April 15th, 2025 to make 2024 HSA contributions. One thing I'd add is to keep really good records of all these transactions. I created a simple spreadsheet tracking: original contributions, the excess amount, withdrawal date and amount, and then the corrective contribution. This made tax filing much easier and gave me peace of mind if the IRS ever had questions. Also, don't stress too much about the "return of excess contributions" form you already filed - that was correct for the portion that was actually excess. The additional $150 you're putting back in is just you using up your remaining contribution room for 2024, which is totally separate and allowed. Just make sure when you contribute that $150 with Fidelity, you explicitly designate it as a 2024 contribution in their system. Their interface makes this pretty clear during the contribution process.