4. How much can an HSA owner contribute to an HSA?
The simple answer is $3,450 for 2018 ($3,400 for 2017) for HSA-eligible individuals covered by self-only HDHPs and $6,900 for 2018 ($6,750 for 2017) for individuals with family HDHP coverage. Additionally, there is a $1,000 catch-up contribution amount allowed for those over age 55.
The simple answer is inadequate because it ignores the issue of eligibility throughout the year. The amount an individual can contribute depends on the following factors:
- HSA Maximums for the Year: The HSA maximum limits are adjusted each year for inflation.
- Self-Only or Family HDHP Coverage: The HSA maximum depends on whether the individual had self-only HDHP coverage or family HDHP coverage.
- Age. Individuals over age 55 are entitled to take advantage of a catch-up contribution.
- First Day of Eligibility: Eligibility on Dec. 1. Individuals that become eligible before Dec. 1 of the year and who remain eligible on Dec. 1 can take advantage of the “full contribution rule.” Dec. 1 is the key date for most taxpayers, if a taxpayer’s tax year does not end in December, then the first day of the last month of the tax year is the key date.
- Last Day of Eligibility: Not Eligible on Dec. 1. If an individual’s last day of eligibility falls in the calendar year and the individual is not eligible on Dec. 1 (calendar year taxpayer), the individual will need to reduce the HSA contribution amount using the “sum-of-the-months” rule.
- First Day of the Month: Eligibility is tied to whether the person was eligible as of the first day of a month.
5. Are the HSA contribution rules different for full year eligibility versus partial year eligibility?
Yes. The HSA maximum contribution depends upon an individual’s HSA eligibility through-out the year:
- Eligible the Entire Year: If an individual is eligible the entire year, which means the individual maintained HSA eligibility for every day from Jan. 1 through Dec. 1 (eligibility is determined by eligibility as of the first day of the month), that individual can contribute up to the HSA limits for the year.
- Eligible for Part of the Year: Not Including Dec. 1. If an individual is eligible for only part of the year and is not eligible on Dec. 1 of the year, the individual is subject to the “sum-of-the-months” calculation to determine how much that individual can contribute. The sum of the month’s calculation requires the individual to determine eligibility on a month-by-month basis and only contribute a pro-rata amount of the federal maximum HSA limit.
- Eligible for Part of the Year: Including Dec. 1. If an individual became eligible for an HSA at some point during the year between Jan. 1 and Dec. 1, and the individual remained eligible on Dec. 1, then that individual qualifies for the “full contribution rule.” The full contribution rule allows an individual to make a full HSA contribution, up to the federal limits for the year, even though the individual was only eligible for part of the year. The key to the full contribution rule is that the individual was eligible on Dec. 1 (or the first day of your last month of your tax year for a non-calendar year taxpayer). However, an individual that takes advantage of the full contribution rule must maintain HSA eligibility for a testing period. If the individual fails to maintain eligibility for a testing period, then a portion of the amount contributed is subject to taxation plus a 10% penalty. The testing period begins on Dec. 1 and runs through Dec. 31 of the next year.
Note: The rules above assume a calendar year taxpayer. If an individual uses a fiscal year for their individual taxes (rare) then replace the Dec. 1 date above with the first day of the last month of the fiscal tax year.
6. If an employer contributes to an HSA can the employee add more funds?
Yes. HSA owners may fully fund an HSA up to the contribution limit. If an employer only partially funds the HSA, the employee can contribute the difference up to the limit.
Example. Big Rigs Inc. makes a $200 per month contribution to all its HSA eligible employees. Marge, a Big Rig employee, worked all year and received $2,400 in HSA contributions from Big Rigs, Inc. When completing her taxes, Marge’s accountant tells Marge her HSA limit is above $2,400 and she should contribute the difference to take advantage of the tax break that HSAs offer. Marge can make an additional HSA contribution outside of her employer for the year so long as she does so by her tax filing due date (April 15 for most taxpayers).
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