HSA Contribution for partial year

Forum|Forum|6 years ago
September 17, 2019
6 replies
39 views

Hi,

I joined a company in September but my health insurance with that company will start Nov 1 so 2 months for 2019. With my previous employer this year I did not have a HDHP and I did have an FSA which I used up before I left.

My HR rep is saying that I can still contribute the maximum, $3500. They contribute on my behalf $750 however I am sure that will be prorated.

Is the HR rep correct or incorrect? I am paid weekly so if I subtract the $750 and prorate I can only contribute $45-$50 a week. I am under 55.

Anonymous

The Last Month Rule states that if you are covered by an HSA eligible health plan on the first day of the last month of a given year, you are considered an eligible individual for the entire year. This gives you the option to contribute the entire year’s contribution limit to your HSA, which is more than you would be allowed otherwise (pro rata by month).

The Testing Period states that if you use the Last Month Rule, you must remain an eligible individual (covered by HDHP) for the next 12 months, so through December 1st of the following year. If you fail to remain an eligible individual (change insurance plans, lose insurance plan, receive other health coverage) during that time, any “excess” contributions you made as a result of using the Last Month Rule will be taxed and penalized.

Perhaps the safest strategy is waiting until the following year (but prior to April 15th) to make a Prior Year Contribution. This ensures you do not over contribute during a period and have to declare and pay tax on the excess

i'am assuming you are not married and won't be married on 12/31/19. what spouse has in the way of health insurance and HSA could affect what you can contribute

as single you can contribute $3,500 for 2019 reduced by employer contributions. so you need to either know this amount so you don't over contribute or if permissible make the contribution for balance for 2019 by 4/15/2020 or whatever your plan permits.

in theory say employer contributes max of 750 then you can contribute up to $2,750, but if the 750 is prorated you can contribute more, if you want. there is no requirement to max out the HSA contribution

jmsnycAuthor

Level 3

Thank you. I was only planning on doing the HDHP for this year, not next year. Next year I plan to switch to a lower deductible plan.

I am almost positive that the $750 is prorated, which means that I can only contribute $229 ($2750/12)per month?

dmertz

Level 15

Since you will not meet the testing period, if you use the last-month rule you'll pay a 10% extra tax on the amount you contribute over what you are eligible to contribute without using the last-month rule. Because you will be covered for only two months, the amount that can contributed on your behalf by you or your employer without using the last-month rule is 2/12 of the annual limit.

Because you will be covered for December, TurboTax will automatically calculate the maximum contribution based on the last-month rule. You can force TurboTax to calculate your maximum contribution without using the last-month rule by indicating that your coverage is for October and November instead of November and December. The details of which months you are covered will not appear on your filed From 8889.