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!)
If you are an HSA account owner and incur a life event that changes your health insurance coverage status (marriage, divorce, death of a spouse, birth of a child, adoption, etc.), your annual contribution limit may change. Here’s the scoop.
The Full-Contribution Rule
First let’s talk about the Full-Contribution Rule, also known as 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 status mid-year.
Suppose the HSA owner enrolled in HSA-eligible High-Deductible Health Plan coverage (HDHP) on January 1 as an individual. During the year, s/he gets married and changes their HDHP coverage from individual to family. In that case, s/he may contribute up to the greater of:
- The average annual contribution based on actual HDHP coverage status (i.e., self-only or family) for each month of the year; or
- The annual maximum HSA contribution limit that applies to the 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 highest of the two results. Here are two examples that help make this easier to understand.
From Individual to Family Coverage
Switching from individual to family coverage is pretty straightforward. For example, Linda Lou starts with individual 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.
Per 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 2022 | 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 Individual Coverage
But what if Linda Lou starts with family coverage on January 1 and switches to individual 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, Linda can contribute $6,570 for that tax year. Then, starting January 1, the standard annual maximum for her actual HDHP coverage status will apply.
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!