HSA Mid-Year Change Status and its Impact on Contributions

HSA Mid-Year Change Status and its Impact on Contributions

Health Savings Account (HSA) contribution amounts can be changed at any time during the plan year. But, when it comes to changing your status within the year, whether it be from individual to family or vice versa, HSA owners are left a little confused.

During 2017, HSA owners can contribute the following maximum amounts to their accounts:

  • Individual – $3,400
  • Family – $6,750

These limits can change though, when a person’s status changes.

Under the Full-Contribution Rule (IRS Notice 2008-52), the annual HSA contribution limit can increase, but not decrease, due to a change in status. The “greater of” provision of the rule allows for higher amount options out of the following two options for an HSA-eligible individual who has a mid-year status change:

  1. The maximum annual contribution limit based on his or her actual HDHP coverage (individual or family) for each month of the tax year, calculated monthly, combined and then divided by 12; or
  2. The maximum annual contribution limit for the tax year based on his or her actual HDHP coverage (individual or family) as of December 1 of that year.

From Family to Self-Only Coverage
As an example of an individual moving from family coverage to self-only coverage – Said individual has family coverage for the 2017 plan year and plans on contributing the maximum amount of $6,750 to their HSA account. But half way through the year, they switch to self-only coverage which has a $3,400 maximum annual contribution limit.

Under the Full-Contribution Rule, their new contribution limit for 2017 comes out to $5,075 per Option #1 above. For the first half of the year they could contribute $6,750 (annually), but for the second half of the year they could contribute $3,400 (annually). So out of the two options listed above, Option #1 is the “greater of” with a new rate of $5,075 (determined from the average of the 6-month periods) compared to Option #2 where the new rate would be just $3,400.

Here’s the breakdown for Option #1:

Month 2017 Annual Contribution Limit
Based on Coverage Level
 January   $6,750
 February   $6,750
 March   $6,750
 April   $6,750
 May   $6,750
 June   $6,750
 July   $3,400
 August   $3,400
 September   $3,400
 October   $3,400
 November   $3,400
 December   $3,400
 Total for all months   $60,900
 Annual Limitation
(divide the total by 12)

From Self-Only to Family Coverage
This one is easier to calculate since the family coverage offers a larger contribution amount. Option #1 from above would still allow the individual to contribute $5,075 if they switched coverage half way through the year. But Option #2 automatically allows the individual to contribute the maximum family coverage amount of $6,750 which would supersede under the “greater of” provision.

It’s best to become familiar with the mid-year change rules and calculations in case any of your employees are looking to do so.

Source: DataPath | How a Mid-Year Change of Status Affects HSA Contributions

For more information contact info@apbenefitadvisors.com. The information contained in this post, and any attachments, is not intended and should not be misconstrued as legal advice. You should contact your employment, benefits or ERISA attorney for legal direction.