Tax Question – Qualifying Child for Health Savings Account

Question: My wife and I have a question about our HSA. We have my kids on her insurance. They are her step kids, and HSA, and BCBS said it was okay. But come to find our we can not use our HSA account for the kids unless she claims them as dependents. Someone that my wife talked too said that there is a law that says we can. Can you help clarify this for us?

Answer:  The IRS code says your wife can use the HSA to pay for your children’s medical expenses if the children qualify as your wife’s dependent.  It does not say she must claim the children as dependents on her tax return. IRC 223(d)(2)

Child Defined
The children must be considered “children” of your wife.  The term “child” means an individual who is a son, daughter, stepson, or stepdaughter of the taxpayer.  IRC 152(f)(1)(A)

Qualifying Child
Your children are considered your wife’s qualifying children if these four tests are met.  IRC 152(c)

1) The children live with your wife for more than half the year;
2) The children are under the age 19 or are full time students under age 24;
3) The children do not provide more than half of their own support; and
4) The children do not file joint returns with their own spouse.

The main test is number 1.  If the children live with you for more than 50% of the year, then you are considered the custodial parents.  The rules are more in your favor if you are considered the custodial parents.

IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.