When HSA account holders undergo life events that alter their health insurance coverage – such as marriage, divorce, the death of a spouse, the birth of a child, or adoption – their annual HSA contribution limit may also be affected. Here’s what you need to know.
The Full-Contribution Rule
First, let’s discuss the Full-Contribution Rule, also called the “greater of” rule. Introduced by the IRS in 2008 (refer to IRS Notice 2008-52), this rule details how to calculate new contribution limits when an HSA owner changes their insurance status partway through the year.
For example, if you begin the year on January 1 with Self-Only coverage under your HSA-eligible High-Deductible Health Plan (HDHP). then get married and switch to Family coverage during the year, your annual contribution limit will change. You would then be allowed to contribute the greater of:
- The average annual contribution limit based on your actual HDHP coverage status (Self-Only or Family) for each month of the year; OR,
- The annual contribution limit for your HDHP status on the first day of the last month of the plan year.
Your annual contribution limit for that tax year will be the higher of these two options. Here are some examples to clarify this concept.
Switching from Self-Only to Family Coverage
Calculating the new annual contribution limit when moving from Self-Only to Family coverage is straightforward. For instance, if you start with Self-Only HDHP coverage on January 1 and then switch to Family HDHP coverage on August 1.
Using calculation Option 1, your annual contribution limitation would be $5,879, as follows:
| Month | Coverage Type | Amount from Limitation Chart |
| 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 | $70,550 | |
| Limitation | Divide the total by 12 | $5,879 |
But using calculation Option 2, your annual contribution limitation would be $8,300. Therefore, under the “greater of” rule, you can contribute $8,300 for that tax year as a result of this mid-year status change.
Switching from Family to Self-Only Coverage
But what would happen if you enrolled in Family coverage on January 1 and then switched to Self-Only coverage on August 1? Your annual contribution limit calculations would be:
- Option 1: $6,570.
- Option 2: $4,150.
Thus under the “greater of” rule, you can contribute $6,570 for that tax year. From January 1 of the following year, the regular annual maximum for your current HDHP coverage status will apply.
If you’re considering a status change that will impact your HSA contributions, consult with your HR or benefits administrator to ensure you make the best decision for your financial and health coverage needs.
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