Category Archives: HSA mechanics

HSA Contribution Limit When Insurance Plan Changes

This question was sent in by HSA Edge reader Oscar. Feel free to email any questions you may have to evan@HSAedge.com

I switched jobs this year. My insurance changed from an HSA to another HSA plan with a different deductible. How does this affect my contribution limit?

Contribution Limit determined by monthly HSA eligibility

The answer to your question is “it depends”, so here is the way to determine this.

Your HSA eligibility is determined on the first day of each month. If you are an eligible individual on the 1st, you “earn” that month’s worth (e.g. 1/12) of the maximum contribution limit. At the end of the year, the sum total of these amounts is your contribution limit for the year.

Remember that an eligible individual is someone who is:

Covered by a HDHP on the first of the month
Has no other health coverage (including FSA’s)
Aren’t enrolled in Medicare
Can’t be claimed as a dependent on someone else’s tax return

IRS Form 969 confirms this:

HSA-what-is-an-eligible-individual

Note that the Last Month Rule can “override” the above logic and increase your contribution limit for the year, based on your eligibility on December 1st.

Calculating contribution limit

Assuming there was no gap in coverage on the first of any month, you will earn that month’s contribution limit as normal. If that means you are an eligible individual during each month of the year, you will earn 12/12 month’s credit and thus 100% of the full contribution limit for the year. This is the maximum contribution afforded to Health Savings Accounts.

On the other hand, if you had a gap in HSA coverage, you might have a reduced contribution limit. For example, if your original HSA coverage ended in August and your new coverage did not begin until October 1st, you would have missed September. That means you lose that 1/12 for September. Assuming you had coverage for the other months in the year, your contribution limit would equal 11/12 x (family/self only limit). Visually, it looks like this:

January – eligible
February – eligible
March – eligible
April – eligible
May – eligible
June – eligible
July – eligible
August – eligible
September – not eligible
October – eligible
November – eligible
December – eligible

For 2018, this equation would be 11/12 x $6,900 family limit = $6,325 for your contribution limit.

Note: If you want help calculating your HSA contribution and filing your taxes, please consider my service EasyForm8889.com. It asks you simple questions and fills out Form 8889 correctly for you in about 10 minutes.

When Can I Make My HSA Contribution?

A common question for HSA participants is, “I have HSA insurance this year, so when and how much can I contribute that to my HSA?”. The answer is actually more flexible than you think: you have myriad options of how much and when you contribute to your Health Savings Account. As you will see, the main rule is you need a Health Savings Account established with a bank / custodian to make the contribution. After that, you have flexibility to get your money into the account.

In general, you can make your full HSA contribution at anytime up until tax day of the following year.

Rule 1: You can contribute any amount up to your Contribution Limit

First, know that you can contribute any amount to your HSA as long as it does not exceed your contribution limit. You have complete flexibility in determining how much to contribute. This can be the maximum allowable, $50 per month, or whatever works for you. Remember: if you start coverage mid year, and are insured as of December 1st, you can use the Last Month Rule to contribute as if you were eligible for the entire year.

Rule 2: You can contribute at any time during the year

You need to open a Health Savings Account in order to make a contribution. Of course, you need to prove HSA eligible insurance to open that account, but after that, you can make contributions at any time. The timing can be weekly, monthly, full amount at once, any amount at any time, or even any amount in the subsequent year (see next section).

Rule 3: You can contribute in the following year

A great part of HSA’s is that you can make a contribution in the subsequent year as a prior year contribution. You have until the tax filing day for the year to make a contribution for the prior year. For example, for the 2019 tax year, you have until April 15th (or so) of 2020 to make an HSA contribution for 2019. Just be sure to flag the contribution for the prior year; otherwise, it will apply towards the current year.

Here are some various scenarios to demonstrate how flexible the timing of your Health Savings Account contribution can be:

Scenario 1: You have HSA coverage all year

If you have HSA eligible coverage for the entire year, then you know your contribution limit. From there, you can contribute that amount at any time in any amount during the year. Let’s say you have self-only coverage in 2019 (note that this would work the same for Family coverage, just different amounts). For 2019, your contribution limit is $3,500. Here are some options as to when you can make your contributions:

Contribute full amount of $3,500 on January 1st, 2019
Contribute 1/12th ($291.67) of full contribution limit each month
Contribute $500 each quarter for a total of $2,000
Contribute full amount of $3,500 on April 14th, 2020 as a prior year contribution

Scenario 2: Start HSA coverage mid year

If you begin coverage mid year, your contribution limit will be less than the maximum allowable. This is because HSA eligibility is determined at the start of each month. As a result, your contribution limit may be a fraction (or pro rata amount) of the maximum limit. For example, if your HSA insurance begins November 1st, your contribution equals 2/12 x your maximum contribution. The options for when you can contribute to the HSA are:

Contribute pro-rata amount (for months covered) any time after coverage begins
Contribute partial amount any time after coverage begins
Contribute maximum amount using Last Month Rule any time after coverage begins (see below)
Contribute full amount before tax day in subsequent year as a prior year contribution

Scenario 3: End HSA coverage during the year

Even if your HSA coverage ends, this does not prevent you from contributing to the HSA for that year. A common misconception is “I can’t contribute any longer because I don’t have HSA insurance”. This is because your contribution limit is a “yearly” amount that can be contributed at any time. Even if your coverage ends, you have still “earned” a contribution limit for the coverage you did have during the year.

You can still contribute to your HSA even after your HSA eligible insurance has ended during the year.

However, given that you will not have HSA eligible insurance for some months, your contribution limit will be less than the maximum contribution limit. Be sure not to over contribute or you will have excess contributions and face taxes and penalties.

If your HSA coverage ended, you have many options to contribute to your HSA:

Full amount before coverage ends
Full amount after coverage ends
Partial amount before coverage ends, partial amount after coverage ends
Full or partial amount in subsequent year as a prior year contribution

Scenario 4: contribute more using the Last Month Rule

The Last Month Rule allows you to contribute the maximum contribution limit during a year that you start coverage, as long as you have coverage on December 1st of that year. That means you can contribute more than you could have otherwise based on the months you had HSA coverage. However, remember that using the Last Month Rule binds you to the Testing Period, which requires that you maintain HSA eligible coverage through the subsequent year. If you do not, your “extra” contribution you made via the Last Month Rule will be taxed and penalized.

If you decide to use the Last Month Rule, here are some examples of when you can make that contribution:

Contribute maximum amount during any month after HSA coverage begins. You can’t open a Health Savings Account until you have HSA eligible coverage, so you can’t contribute until you have coverage. Note that doing this before December assumes you will have HSA coverage in December (and the following year).
Contribute percentage of full contribution limit each month after coverage began
Make a one time contribution any month after coverage began
Contribute full amount of $3,500 on April 14th, 2020 as a prior year contribution using the Last Month Rule

Note: Regardless of when you make your HSA contribution, when you need to complete Form 8889 for your HSA, please consider my service EasyForm8889.com. It asks you simple questions and fills out Form 8889 correctly for you in about 10 minutes.

HSA Employer Contributions on W2 Box 12 “W”

Come tax time when you need to file Form 8889, you may be wondering how to find your contributions to your HSA. We know that you should be receiving Form 5498-SA from your HSA custodian that outlines the total contributions that went into your HSA during the year. However, this form is a lump sum total: it does not break out employer (no tax impact) vs. employee (tax deductible contributions); it just shows how much went into the account that year. Also remember that form 5498-SA may be missing prior year contributions made in the current year.

So how can you figure out your employer contributions that were made? How can you use this information to complete Line 3 and Line 9 of Form 8889?

A word about Cafeteria Plans

For one, let’s clarify that cafeteria plan contributions are counted as employer contributions. Cafeteria plans are when your employer withholds your contributions which they send to the HSA custodian for you. So these are employee contributions but your employer is doing the work for you. The benefit of cafeteria plans is that they are already pre-tax; not just income tax, but medicare / social security / other tax. So you save the taxes up front and get them deposited automatically into

You will see that for both the W2 and Form 8889, cafeteria plan contributions function just like employer contributions, not employee contributions.

Employer vs. Employee Contributions on W2

When you receive your W2 at year end, you will have a Box 12 marked with “W” and your employer contributions for the year. As mentioned, this amount will contain:

Amounts your employer contributed to your HSA
Amounts you contributed to your HSA through your employer via a cafeteria plan

Here is what Form W2 looks like for 2018 with HSA contriibutions:

HSA-employer-contributions-W2-example

So this box indicates any employer contributions for the fiscal year. Note that this box will not contain any prior year contributions – these will need to be added to the amount. If your employer pays a bonus or end of year contribution into your HSA that occurs in the following year, be sure to add that in.

Around the same time you will receive Form 5498-SA from your custodian. It will detail the total contributions made to your HSA. Again, be sure to add any prior year contributions before filing Form 8889. Using this and your W2, you can calculate the employee contributions to your HSA.

Employee Contributions equal contributions on Form 5498-SA minus those on your W2 Box 12 “W”

What this is saying is, “Total HSA contributions – Employer Contributions = Employee Contributions.” Using these two documents, you can back out and determine your contribution amount.

Alternatively, you may be able to access your HSA custodian’s website to see a breakdown of employee vs employer contributions. But it is always best to confirm with the official documentation in case you need to correct anything.

Impact on Form 8889

Now that we know the difference between employee and employer contributions, you need to handle them correctly on IRS tax form 8889 for Health Savings Accounts. You will report your (post-tax) employee contributions on Line 2, and employer (including cafeteria plan) contributions on Line 9.

Note: if you need help accounting for your HSA contributions, please consider my service EasyForm8889.com to complete Form 8889. It asks simple questions in a straightforward way and will generate your HSA tax form in 10 minutes. It is fast and painless, no matter how complicated your HSA situation.