Mid-Year Status Changes and HSA Contribution Limits
Hey! Did you hear the one about the notebook that married a pencil? She finally found her Mr. Write! 🙂 (Honestly, I crack myself up!)
HSA account owners who experience a life event that changes their health insurance coverage status – such as a marriage, divorce, the death of a spouse, birth of a child, adoption, etc. – may also experience a change in their annual HSA contribution limit. Here’s the scoop.
The Full-Contribution Rule
First, let’s talk about the Full-Contribution Rule, also called the “greater of” rule. Issued by the IRS in 2008 (see IRS Notice 2008-52), this rule explains new contribution limit calculations when an HSA account owner changes their insurance status mid-year.
Suppose the HSA owner enrolled on January 1 in their HSA-eligible High-Deductible Health Plan coverage (HDHP) as Self-Only. During the year, they get married and change their HDHP coverage from Self-Only to Family. As a result of the mid-year change in coverage, their annual contribution limit changes too. They are now eligible to contribute the greater of:
- The average annual contribution limit based on actual HDHP coverage status (i.e., Self-Only or Family) for each month of the year; or
- The annual contribution limit for their actual HDHP status on the first day of the last month of the plan year.
After calculating what the annual limit would be under each option, the HSA account owner’s annual contribution limit for that tax year is the “greater of” (highest of) the two. Here are two examples that help make this easier to understand.
From Self-Only to Family Coverage
Calculating the new annual contribution limit when switching from Self-Only to Family coverage is pretty straightforward. For example, Linda starts with Self-Only HDHP coverage on January 1 but switches to Family HDHP coverage effective August 1.
- Under Option 1, Linda Lou’s annual limit would be $5,879.
- However, under Option 2, her limit would be $8,300.
So, under the “greater of” provision of the Full-Contribution Rule, Linda can contribute $8,300 for that tax year. Here’s the detailed calculation for Option 1.
| Months in 2024 | Coverage Type | Amount from Limitation Chart (see Form 8889 instructions) |
| January | Individual | $4,150 |
| February | Individual | $4,150 |
| March | Individual | $4,150 |
| April | Individual | $4,150 |
| May | Individual | $4,150 |
| June | Individual | $4,150 |
| July | Individual | $4,150 |
| August | Family | $8,300 |
| September | Family | $8,300 |
| October | Family | $8,300 |
| November | Family | $8,300 |
| December | Family | $8,300 |
| Total for all months | $70,550 | |
| Limitation. Divide the total by 12. | $5,879 |
From Family to Self-Only Coverage
But what if Linda starts with Family coverage on January 1 and switches to Self-Only coverage beginning August 1? Again, she would calculate her annual contribution limit based on Options 1 and 2:
- Under Option 1, her annual limit would be $6,570.
- Under Option 2, her limit would be $4,150.
Using the “greater of” provision, as a result of her mid-year insurance status change, Linda can contribute $6,570 for that tax year. Then, starting January 1, the regular annual maximum for her actual HDHP coverage status at that time will kick in.
Talk to your HR or benefits administrator if it’s the “write” time to make a status change affecting your HSA contributions.
And if you have more HSA questions, learn more in my HSA FAQs!