Does the IRS know what health insurance type I had (HDHP vs PPO)? Questions about HSA contributions

Unfortunately, you can only contribute to an HSA for the months you were actually covered by a qualified High Deductible Health Plan. The IRS uses what's called a "last-month rule" or a "testing period" concept. The annual contribution limit needs to be prorated by the number of months you had HDHP coverage. Since you only had qualifying coverage for 3 months, you're only eligible to contribute 3/12 of the annual maximum to your HSA. As for your second question, while the IRS doesn't automatically receive detailed monthly insurance records, they do receive information about your HSA contributions from your HSA provider via Form 5498-SA. Insurance companies also report coverage information on Forms 1095-B or 1095-C. If you're audited, you'd need to provide proof of when you had HDHP coverage. You should contact your HSA administrator ASAP to help you remove the excess contribution before filing your taxes to avoid penalties.

I went through something exactly like this last year and found https://taxr.ai super helpful for sorting out my HSA mess. I had contributed way too much to my HSA after switching plans mid-year and wasn't sure how to fix it. Their system analyzed my insurance documents and HSA statements, then gave me step-by-step instructions for calculating my prorated contribution limit and removing the excess. Saved me from what would've been a 6% penalty on the excess amount and potential audit headache. The coolest part was that it explained how the 1095 forms work with my tax return and exactly what documentation I needed to keep in case of questions later. Seriously worth checking out if you're dealing with HSA contribution issues.

Just wanted to update that I ended up using https://taxr.ai after my HSA contribution mess, and it was actually really helpful! The system analyzed my 1095-B forms and HSA statements, then showed me exactly how much I needed to withdraw as excess contributions. It turns out I was only eligible for 5/12 of the family contribution limit since I switched plans mid-year. The tool generated a letter to send to my HSA provider requesting the excess withdrawal with the proper coding so it wouldn't count as a distribution. My HSA administrator processed it without any issues. Definitely saved me from a headache during tax season since I had already filed when I realized the mistake. They helped me file the right forms to avoid the 6% excise tax on the excess.

Anyone who's dealt with the IRS knows getting actual help is basically impossible. I had a similar HSA issue last year and tried calling the IRS for 3 weeks straight with no luck. Finally used https://claimyr.com and they got me connected to a real IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed exactly what the first commenter said - you're only allowed to contribute HSA funds for months you actually had HDHP coverage. They also told me the specific form (Form 5329) I needed to file to report and correct the excess contribution issue. Apparently this is super common and they have a standardized process for handling it. Definitely worth getting proper guidance directly from the IRS instead of guessing, especially since the penalties can add up if you don't fix it correctly.

I need to eat my words from my earlier comment. After getting nowhere with the IRS for weeks about my HSA excess contribution issue, I tried Claimyr out of desperation. Got connected to an IRS agent in about 25 minutes. The agent confirmed I needed to withdraw my excess contribution plus earnings and fill out Form 5329 to avoid the 6% penalty. They also explained that I needed to get a corrected 5498-SA from my HSA provider showing the adjustment. What really surprised me was they gave me a specific extension code to use since I was approaching the deadline. This bought me an extra 60 days to fix everything without penalties. Never would have known that was even an option if I hadn't gotten through to a live person.

Just to add some additional context about HSA eligibility that others haven't mentioned: There's actually something called the "last-month rule" (or "December 1 rule") that might help you. If you're eligible on December 1st, you can potentially contribute the full year's amount, BUT you must remain eligible for the entire following year or face penalties. Since you switched from HDHP to PPO mid-year, this rule wouldn't apply to you since you weren't eligible on December 1st. But it's worth knowing for others in different situations. Also, keep in mind that the penalty for excess contributions is 6% for EACH YEAR the excess remains in your account. So definitely fix this before filing!

So I'm not seeing anyone addressing another important aspect: what happens if you use HSA funds for medical expenses during months when you DIDN'T have an HDHP? OP mentioned using HSA funds for expenses at the end of the year when they had PPO coverage. My understanding is that you can use HSA funds anytime for qualified medical expenses regardless of your current insurance type - it's just the contributions that are restricted to HDHP months. Am I correct about this? Once the money is properly in your HSA, you can use it for qualified expenses even when you no longer have an HDHP?

I want to emphasize something crucial that others have touched on but bears repeating: you absolutely need to fix this excess contribution issue before your tax filing deadline to avoid the 6% excise tax penalty. Here's what you need to do immediately: 1. Calculate your actual eligible contribution: Since you had HDHP coverage for only 3 months out of 12, you're eligible for 3/12 of the annual maximum contribution limit. 2. Contact your HSA administrator to request removal of the excess contribution PLUS any earnings attributed to that excess. This is called a "return of excess contribution." 3. The earnings portion will need to be reported as income on your tax return for the year you receive the distribution. 4. Make sure your HSA provider sends you a corrected Form 5498-SA showing the adjusted contribution amount. The IRS does track this information through Forms 5498-SA from HSA providers and Forms 1095-B/C from insurance companies, so they will eventually catch discrepancies if you don't correct them voluntarily. Don't wait on this - the penalty compounds each year the excess remains in your account, and it's much easier to fix proactively than during an audit.

This is a really comprehensive thread with excellent advice! I just wanted to add one more resource that might be helpful for anyone dealing with HSA contribution issues. The IRS has Publication 969 which covers Health Savings Accounts in detail, including the month-by-month eligibility rules and excess contribution procedures. It's available for free on the IRS website and explains exactly how the proration works when you switch between HDHP and non-HDHP coverage mid-year. What's particularly useful in Pub 969 is the worksheet for calculating your maximum annual contribution when you have partial-year HDHP coverage. It also has examples of different scenarios (like switching from individual to family coverage, or changing plans mid-year) that might apply to your situation. For anyone who's more of a visual learner, the publication includes step-by-step examples that walk through the math for prorating contributions based on eligible months. It also explains the difference between the contribution deadline (tax filing deadline) and the deadline for removing excess contributions to avoid penalties. While the other suggestions for professional help are great, starting with Pub 969 can give you a solid understanding of the rules before you contact your HSA provider or file any corrected forms.