Tag Archives: Contribution Limits

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.

2019 IRS HSA Contribution Limits

The 100+ person team (kidding?) at the IRS has cranked their magic number machine and released their 2019 HSA limits and definitions. This includes the 2019 HSA Contribution Limits as well as the 2019 HDHP Definitions for Minimum Annual Deductible and Out of Pocket Maximum. These amounts govern 1) how much can be contributed to an HSA and 2) what qualified as an HSA for 2019. Overall, they have done a good job and it will be a good year for HSA savers as well as new people looking to establish an HSA for the first time.

2019 is a strong year for HSA’s in general. Both the self-only and family contribution limits increased, and the HDHP definition has widened, making more people eligible.

2019 HSA Contribution Limits

First, the good news on what you can contribute. If you have an HDHP and have opened a Health Savings Account, below are the contribution limits for self-only and family coverage for 2019:

	2015	2016	2017	2018	2019
Self-Only HSA Contribution Limit	$3,350	$3,350	$3,400	$3,450	$3,500
Family HSA Contribution Limit	$6,650	$6,750	$6,750	$6,900*	$7,000
55+ Additional Contribution Limit	+$1,000	+$1,000	+$1,000	+$1,000	+$1,000

*Note: the IRS reduced and then restated the 2018 Family Contribution limit to $6,900.

2019 is another good year for HSA contribution limit increases. Self-only HSA’s have increased their contribution limit by $50 over 2018, which history shows is about as good as it gets. In addition, the family HSA contribution limit has increased by $100 over 2018. These are solid increases especially compared to the lean years of 2016 and 2017. It seems the IRS is giving the taxpayers a (small) break since these contribution limits determine the deduction your HSA allows. This marks the 2nd year where we have strong increases in both the self-only and family contribution limits. This may be a trend and we hope it continues, since it improves the population’s ability to manage their care in an environment of insane health care costs.

Now, if we could just do something about that catch up contribution! The 55+ catch up contribution has been stuck at an additional $1,000 for what seems like forever…

2019 HDHP Limits

Below are the 2019 HDHP deductible limits as well as out of pocket maximums that determine whether or not your plan is an High Deductible Health Plan, and thus, whether or not you can contribute to a Health Savings Account:

	2015	2016	2017	2018	2019
Self-Only Min Deductible	$1,300	$1,300	$1,300	$1,350	$1,350
Self-Only OOP Max	$6,450	$6,550	$6,550	$6,650	$6,750
Family Min Deductible	$2,600	$2,600	$2,600	$2,700	$2,700
Family OOP max	$12,900	$13,100	$13,100	$13,300	$13,500

Overall, HSA coverage is easier to obtain after the IRS changes in 2019. This is true for two reasons. First, the IRS has kept constant the minimum annual deductible for both self-only and family coverage. This amount is the lowest deductible your plan can offer and still be HSA eligible. In 2019, a self-only plan must have a deductible at or above $1,350, while a family plan deductible must be at or above $2,700. As a result, some plans with low deductibles are ineligible to contribute to an HSA since their annual deductible is too low. In prior years, the IRS has increased the minimum annual deductible that defined HDHP (and HSA ) plans. By keeping it constant, it allows more plans to participate. This is especially true in an environment of rising health care costs.

Second, we see large increases in the out-of-pocket maximum. This is the highest amount your plan can make you pay for care in a year. The self-only out-of-pocket max has increased by $100 to $6,750, while the family out-of-pocket max has increased $200 to $13,500. Anything more and the plan is not HSA eligible. This results in more plans with very high deductibles being included in the HDHP definition. It is an open question as to why there needs to be an OOP max at all in the HDHP definition, but either way, an increase in this metric in an environment of rising costs (not just rising premium, but decreasing coverage) is positive. This site maintains that the more HSA’s opened, the better.

2019 HSA Wish list / Forecast / Political Outlook

With Christmas around the corner, here is our 2019 wish list for HSA’s:

Remove retroactive Medicare penalty
Higher contribution limits
More people eligible for HSA’s

Of course, what we really want to see is the minimum annual deductible decrease or disappear. That relates to #3 above but has never really happened – the best case, like this year, is it remains constant year over year. Decreasing this would allow people with more diverse insurance plans take advantage of HSA’s as well.

Perhaps that occurs sometime in the future, but short-term that is unlikely with a split Congress going into 2019. Bills improving HSA’s were introduced during the first 2 years of Trump’s term, during which he held a majority in both houses, but no one could agree on anything and no new laws were passed. With the mid-term elections completing in November 2018, the outlook for HSA’s has decreased, as it is unlikely anything improving (or worsening) HSA’s will be passed in the forthcoming gridlock.

Note: When you file your 2019 taxes and 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.

Correct HSA Excess Contribution from Prior Year

This question was submitted by HSA Edge reader Sue. Feel free to send in your question today to evan@hsaedge.com.

I made a contribution on 12/29/16 of $3,000, however, I was not HSA eligible in 2016. How can that be corrected to reflect the correct tax year of 2017? The trustee could not correct it. Should my CPA refile 2016 taxes to report the correction?

Excess Contributions

HSA excess contributions occur when an amount greater than the account owner’s contribution limit is contributed to the HSA. It sounds like you made an excess contribution in 2016 as you were not HSA eligible. While you would like to move that contribution for 2017, it is currently September of 2018, so that tax year is likely closed.

Generally, the remedy for excess contributions is for the account owner to remove the excess contribution from the account before taxes are filed taxes for that year. This can be done on Form 8889, see “Correcting HSA Excess Contribution on Form 8889“. I don’t believe the custodian can fix it for you. That would involve them saying, “This contribution wasn’t for 2016 it was for 2017”. I don’t believe they can roll a contribution forward like that. The only time they can do that is to reclassify a contribution as a prior year contribution, as in, “This 2018 contribution was made before my tax deadline (contribution cut off) and I want it to reclassify it as a 2017 prior year contribution”.

To avoid headaches, remove Excess Contributions in the year they occur.

In your case, since that excess contribution removal did not happen, you may have misstated your 2016 tax returns if you did not pay taxes on that HSA contribution. Said another way, you likely took the HSA deduction on $3,000 when your contribution limit was $0 as you were not HSA eligible. This means you underpaid taxes on that $3,000 of income in 2016.

Leaving Excess Contributions in your HSA

The IRS imposes a penalty for leaving excess contributions in your HSA. This is called the excise penalty and amounts to 6% of the excess contribution per year it remains in the account. Per Form 969:

Generally, you must pay a 6% excise tax on excess contributions (see Form 5329). The excise tax applies to each tax year the excess contribution remains in the account.

So besides having tax deduction headaches, the IRS throws in a yearly penalty on the amount of the excess contribution.

Correcting Prior Year Excess Contributions

Correcting prior year HSA excess contributions involves moving the contribution from when it was excessive to when it was allowed. However, this tricky because it affects tax forms and involves both 1) correcting tax deduction (i.e. paying taxes) and 2) paying the 6% excise penalty in prior years. The procedure is to go back to the source, pay any taxes on the excess contribution, pay any penalties up until contribution is allowed, and then take the contribution in the allowable year. You will receive the HSA deduction when you remake the contribution, so that at least offsets paying the taxes in the prior year.

Correcting prior year HSA excess contributions involves moving the contribution from when it was excessive to when it was allowed.

In summary, I believe the way to correct your situation is to:

Restate 2016 income tax form to remove HSA deduction
Pay 6% excise tax on excess amount in HSA in 2016
Pay 6% excise tax on excess amount in HSA in 2017
Take deduction for contribution in 2018 for amount already in HSA, assuming you still have HSA coverage.

[Note that if you filed an extension for 2017 you may still be able to make the HSA contribution for that year and avoid #3 above.]

Deduct Excess Contribution in a later year

Form 969 also allows you to deduct the excess contribution in a later year. This means that you made an excess contribution in a prior year, did not take the tax deduction then, left it in your account, and later use that amount as a valid contribution in a later year. You thus receive the tax deduction for that year. This option is utilized in step #4 of the solution above. Form 969 states:

You may be able to deduct excess contribution for previous years that are still in your HSA. The excess contribution amount you can deduct for the current year is the lessor of 1) Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year and 2) the total excess contributions in your HSA at the beginning of the year.

Note: if you need help excess contributions this year, please consider using my service EasyForm8889.com to help complete Form 8889. It is fast and painless, no matter how complicated your HSA situation.