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How Much Can I Contribute?
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Below is an analysis of allowable HSA contributions when moving on and off an HDHP Mid-Year
Moving On an HDHP Mid‐Year:
In most cases, when an individual moves onto an HDHP plan during the current tax year, that individual is allowed to make the full IRS allowable contribution into their HSA for that year, so long as they are enrolled in the HDHP on the first day of the last month of the taxable year (usually December 1st).
If an individual enrolls in an HDHP after the first day of the last month of the taxable year, then that individual is not allowed any contribution into an HSA for that tax year.
Example 1:
Nancy is enrolled in an HDHP 10/1/2011 through 12/31/2011. She is under 55 and has no dependents. The IRS allowable contribution for the year is $3,050. Nancy is allowed to contribute
$3,050.00 for the year
Moving Off an HDHP Mid‐Year:
If an individual is enrolled in an HDHP at the start of a tax year, and then terminates that coverage mid‐year, that individual is no longer allowed to contribute the full IRS allowable contribution into their HSA for that year.
Instead, that individual is allowed to contribute 1/12 of the IRS allowed contribution for that year, times the number of months during which they were enrolled in an HDHP.
Example 2:
John is enrolled in an HDHP 1/1/2011 through 4/30/2011. He is under 55 and has no dependents. The
IRS allowable contribution for the year is $3,050. John is allowed to contribute
($3,050/12) = $254.16 * 4 months = $1,016.67 for the year
Example 3:
Sally is enrolled in an HDHP 1/1/2011 through 9/30/2011. She is over 55 and covers her spouse on her plan. The IRS allowable contribution for the year is $6,150 + $1,000 in catch up contributions due to her
age, for a total of $7,150 for the year. Sally is allowed to contribute
($7,150/12) = $595.83 * 9 months = $5,362.50 for the year
Moving On an Off an HDHP within the Same Year:
If an individual moves on and off an HDHP within the same year, the limits for having moved off the HDHP apply.
Example 4:
Larry enrolls in an HDHP 7/1/2011 but then terminates his coverage on an HDHP 10/31/2011. He is
under 55 and covered his daughter on the plan. The IRS allowed contribution for the year is $6,150.
Larry is allowed to contribute
($6,150/12) = $512.50 * 4 months = $2,050 for the year
*An individual must be enrolled on the first day of a month in order for that month to count in the
calculations.
Dealing with Excessive Contributions:
If an individual contributes more than their allowed amount as calculated above they must
deduct the excess contribution as outlined below in order to avoid incurring penalties from the IRS:
- The funds must be withdrawn by the due date, including extensions, of the tax return for that year
- The individual cannot claim a deduction for the mount of the withdrawn contributions,
- The individual must also withdraw any income earned on the withdrawn contributions and
include the earnings in “Other income” on their tax return for the year the funds are
withdrawn
For complete details on figuring your allowable contributions review the Instructions for Form 8889
available at http://www.irs.gov/pub/irs‐pdf/i8889.pdf or consult your Certified Public Accountant.
If you have any questions or need any additional information, please contact Mark Jackson.
Also, provided is a link to the HSA "Instructions Form 8889": http://www.irs.gov/pub/irs-pdf/i8889.pdf .
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