By Larry Grudzien, JD
One of my clients sponsors a High Deductible Health Plan (HDHP) with a Heath Savings Account (HSA). One of the client’s employees covers his same sex domestic partner under the HDHP. The employee has the following questions:
Q. Since the employee covers his domestic partner under family coverage, can the employee contribute the family coverage amount to his HSA?
A. Yes. Family HDHP coverage is defined in Code Section 223(c)(4) as "any coverage other than self-only coverage." IRS Notice 2004-50, Q/A-12 confirms that family HDHP coverage is HDHP coverage for one HSA-eligible individual and at least one other individual (whether or not the other individual is an HSA-eligible individual).
Q. Can the domestic partner establish a HSA for himself?
A. It depends. If the domestic partner can be claimed as a tax dependent of the employee, he is not an eligible individual for HSA purposes, as provided in Code Section 223(b)(6).
A spouse is not considered to be a tax dependent under Code Section 151 (or under Code Section 152), even though a taxpayer may claim an exemption for the spouse as provided under Code Section 151(c). So a spouse can establish a HSA if he or she otherwise is an eligible individual, although the contribution limit for married couples with family HDHP coverage may be limited through application of the special rule for married individuals.
Q. For these purposes what does the term "tax dependent" mean?
A. Under Code Section 223(b)(6), a tax dependent is defined as any individual with respect to whom a deduction under Code Section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins. A taxpayer may claim an individual as a tax dependent under Code Section 151 if the individual is
1. the taxpayer’s child and under age 19 at the end of the tax year;
2. the taxpayer’s child, a student, and under age 24 at the end of the tax year; or
3. a member of the taxpayer’s household for whom the taxpayer provided over half of the support for the year and whose gross income does not exceed the personal exemption amount (i.e., for 2009 or 2010, does not exceed $3,650).
Please remember that this definition is narrower than the medical plan definition of dependent found in Code Section 105(b). As a result, an individual may be eligible for tax-free coverage as a dependent under the employer’s medical plan and eligible for tax-free reimbursements under a HSA without being ineligible to establish his own HSA.
Q. Can the employee’s domestic partner be considered the employee’s spouse if the employee and his domestic partner were married in a state that recognizes gay marriage?
A. No. For purposes of federal law (including federal tax purposes), a spouse includes only a person of the opposite sex who is a husband or wife, as provided in the Defense of Marriage Act (DOMA), Pub. L. No. 104-199. This means that a same-sex domestic partner (or same-sex spouse, even where same-sex marriage is allowed by state law) cannot be a spouse.
Q If the employee’s domestic partner is not the employee’s tax dependent, how much can he and his domestic partner contribute to their own HSAs?
A. The employee and his domestic partner can contribute in total $5,950 for 2009.
Q. Would the answer above be different if the domestic partner also worked for an employer who sponsored a HDHP, the domestic partner covered the employee under family coverage and the domestic partner established a HSA?
Yes. Under that situation, the employee and his domestic partner can each contribute $5,950 for 2009 to their own HSA. The HSA contribution limits imposed on married individuals do not apply to domestic partners, since they are not considered spouses under federal law.
Q. Can the employee reimburse his domestic partner’s medical expenses under the employee’s HSA?
A. Yes. For the reimbursement of the domestic partner to be tax free, he or she must qualify as a tax dependent under Code Section 105(b). This definition relies on the definition of dependent found in Code Section 152, determined without regard to subsections (b)(1), (b)(2), or (d)(1)(B). As a result, the otherwise qualifying medical expenses of the following individuals (who would not qualify as tax dependents under a strict Code Section 152 definition) could be eligible for tax-free reimbursement from a HSA:
1. an individual who is married and files a joint return with another taxpayer;
2. an individual who could have been claimed as a dependent but who received more than the exemption amount ($3,650 for 2009 and 2010) in gross income; and
3. an individual who could have been claimed as a dependent, except that the HSA account holder, or spouse if filing jointly, was claimed as a dependent on someone else’s tax return.
If the domestic partner does not qualify as a tax dependent for these purposes, an employee will not be prevented from reimbursing the medical expenses. Such reimbursement will be taxable to the employee and may be subject to an additional 10% tax.