How A Mid-Year Coverage Change Affects HSA Contribution Limits

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:

  1. The average annual contribution limit based on your actual HDHP coverage status (Self-Only or Family) for each month of the year; OR,
  2. 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:

MonthCoverage TypeAmount from Limitation Chart
JanuaryIndividual$4,150
FebruaryIndividual$4,150
MarchIndividual$4,150
AprilIndividual$4,150
MayIndividual$4,150
JuneIndividual$4,150
JulyIndividual$4,150
AugustFamily$8,300
SeptemberFamily$8,300
OctoberFamily$8,300
NovemberFamily$8,300
DecemberFamily$8,300
Total$70,550
LimitationDivide 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.

For 40 years, DataPath has been a pivotal force in the employee benefits, financial services, and insurance industries. The company’s flagship DataPath Summit platform offers an integrated solution for managing CDHHSAWell-BeingCOBRA, and Billing. Through its partnership with Accelergent Growth Solutions, DataPath also offers expert BPO services, automation, outsourced customer service, and award-winning marketing services.

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