What is HSA contribution deadline for tax purposes?

[tk01kj]

My employer's benefits year runs from April 1 to March 31, while most taxpayers file their taxes following the calendar year. I'm currently on a family health insurance plan but I'm thinking of quitting that and starting my own HSA account within my employer.

But since the year 2018 is ending soon, it means I will have only 1-2 months to maximize the HSA contribution limit, $3450, for employee only HSA.

Is December 2018 the deadline for 2018 HSA tax deduction?

[Opus 17]

You can contribute for 2018 as late as April 15, 2019, as long as you inform the HSA bank in advance that you are making a 2018 contribution (it may be a menu choice if you make contributions via online banking, or may require a special form if mailing a check.)

You can't contribute to an HSA if you have NO other medical insurance, you must have a qualifying HDHP (high deductible health plan) as defined here. https://www.irs.gov/pub/irs-pdf/p969.pdf

Your employer may not offer an HDHP, or if they do, they may not allow you to change mid-year without a qualifying event, such as a marriage or birth of a child.  If you quit, and buy an HDHP on the open market, you may end up paying more than the premiums for your employer sponsored plan.

If you enroll in a qualifying HDHP, you can contribute $3450 for 2018 IF you meet the last month rule.  If not, you can only contribute 1/12th of $3450 for each month you are eligible.  If your HDHP takes effect on or before December 1, that would be one month of eligibility or $287.50.

The last month rule states that if you are eligible to contribute to an HSA on December 1 of the year, you can contribute the annual maximum, as long as you remain eligible to contribute to an HSA for the entire following calendar year.  If you become ineligible during the following calendar year, your 2018 contributions will be considered unqualified and you will pay income tax and a penalty.  Whatever your eligible amount for 2018 ($287 or $3450), you have until April 15, 2019 to make the contribution as long as you tell the bank in advance so it is properly recorded.

-----

Other facts of interest.  If you are age 55 or over, you get an additional $1000 catch up contribution, or $83 per month, added to your maximum.

Also, if you can be claimed as a dependent by anyone, you can't contribute to an HSA.  And if your spouse has insurance that covers you, you can't contribute.  You can only contribute if your only medical coverage is an HDHP.

[tk01kj]

Can I contribute to my employer's HSA but not enroll in my employer's own HDHP and just enroll in my own HDHP?

[dmertz]

Generally, yes, but that would be up to the HSA custodian and the custodial agreement you have with them.  If for some reason they only permit contributions made by your employer, you could always open a second HSA account elsewhere to receive your personal contribution.  While it may be less convenient to keep track of multiple HSA accounts, nothing prevents you from having multiple HSA accounts; they are treated in aggregate for tax purposes.

[tk01kj]

Do I need to be the primary holder of the High deductible healthcare plan in order to contribute to a HSA? Right now, I'm on my parent's family HSA plan where I'm not the primary holder. My employer has an HSA plan that deducts $27 per month, and contributes $42 to the plan for a single employee. At the max I want to contribute up to the $3450 limit, my salary for 2018 is $98500, I already maxed out my trad IRA ($5500) and 401k ($18500) and my goal for HSA is primarily another tax shelter, but I'm thinking I'd only save another $500 in taxes with the $3450 deduction added on. Given that I need to be the primary account holder of the healthcare plan, I'm not sure if it's worth paying for it.

[dmertz]

No, you don't have to be the primary policyholder, but be aware that you are not eligible to contribute to an HSA if your parents can claim you as a dependent on their tax return (whether or not they actually claim you).  As far as I know, if you are an eligible individual and are covered by a family HDHP plan, your contribution limit is the family limit, not the self-only limit, independent of anything your parents contribute to HSAs.  (This loophole was introduced when the law was changed to allow adult children up to age 26 to be on their parents' insurance policy even though they are not claimable as dependents.)

Given only the income and deductions you mentioned, I see about a $760 tax savings for a $3,450 HSA contribution (twice that for a $6,900 family-limit contribution).  However, the main benefit under your circumstances is the long-term tax-free growth, not the immediate tax savings.  (This also makes me question your IRA and 401(k) contributions being all to traditional rather than at least some to Roth accounts.  Contributions to traditional accounts are only tax deferred, and when distributed, are subject to ordinary income tax regardless of the type of investments held in these accounts.  I might be inclined to make at least the IRA contribution to a Roth IRA which allows you tax- and penalty-free access to your original contributions at any time, and tax-free growth provided requirements are met.)

[tk01kj]

I'm lost on HSA contribution. I just called HSA bank told me I must be account holder in order to contribute. So if not then my parents fan contribute $4000 and I can contribute $2900 to a separate HSA account? I thought IRS prevente this where does it say

[dmertz]

I'm not aware of any guidance from the IRS that says anything about non-dependent adult children on their parents' policy.

For the definition of an eligible individual, Section 223(c)(1)(A) of the tax code says:

---
(A)  In general The term “eligible individual” means, with respect to any month, any individual if—
(i)   such individual is covered under a high deductible health plan as of the 1st day of such month, and

(ii)  such individual is not, while covered under a high deductible health plan, covered under any health plan—
(I)   which is not a high deductible health plan, and

(II)   which provides coverage for any benefit which is covered under the high deductible health plan.
---

It says only that you must be covered by the HDHP, nothing about who is the policyholder.

Regarding the contribution limit, Section 223(b)(2)(B) says:

---
(B) in the case of an eligible individual who has family coverage under a high deductible health plan as of the first day of such month, $4,500.
---

The cost-of-living adjustment has raised the family contribution limit for 2018 to $6,900.

Section 223(b)(5) requires married individuals who are both qualified individuals to share the family limit, but says nothing about others on the policy:

---
(5)  Special rule for married individuals In the case of individuals who are married to each other, if either spouse has family coverage—
(A)   both spouses shall be treated as having only such family coverage (and if such spouses each have family coverage under different plans, as having the family coverage with the lowest annual deductible), and
---

Section 223:  <a rel="nofollow" target="_blank" href="https://www.law.cornell.edu/uscode/text/26/223">https://www.law.cornell.edu/uscode/text/26/223</a>

[dmertz]

Here is a reference I found.  See "Healthcare reform and adult children covered by your HDHP" (pdf page 16, document page 9) in:  <a rel="nofollow" target="_blank" href="http://healthequity.com/doclib/hsa/guidebook.pdf">http://healthequity.com/doclib/hsa/guidebook.pdf</...>

You be the judge of this reference's authoritativeness.  There are other references out there saying the same thing.

[Opus 17]

You must be the account owner of the HSA.  You may not need to be the primary insured, if you are not a tax dependent but are covered by a parents HDHP.  

If your employer won’t allow you to join their HSA and receive free employer money if you aren’t the primary insured, but you are eligible to make HSA contributions, you could open a personal HSA at any convenient bank and make tax deductible contributions from your take home pay.  You won’t get free money from your employer but you would get the tax savings and long term growth from your contributions.  

Or, join your employer’s HDHP and have your parents take you off of their plan.  You becoming eligible for your own insurance would generally be a qualifying event that allows your parents to change their coverage even outside the normal open enrollment period.   

[dmertz]

Thanks, Opus 17.  I missed the distinction that HSA Bank was referring to the HSA accountholder, rather than the HDHP policyholder.  I think HSA Bank answered a different question than was asked.

[tk01kj]

Another question: Say that my employer will contribute $167 and I contribute the rest $3283 for 4 months until April 2019. Is there a tax difference between maximizing the $3283 in one month (am I even allowed to do that) in December 2018 vs spreading out the payments to HSA evenly? In the end my deduction for 2018 HSA is still $3450 correct?

[dmertz]

No there is no tax difference as long as the contributions made in 2019 are explicitly designated as being for 2018.

[tk01kj]

My employer told me "he HSA contributions cannot be done in one time. The amount you select will be equally divided for the remaining paychecks in the plan year. Hence, one time contributions are not applicable for HSA.

This forum is telling me HSA contributions can be changed to 1 time to max out.

[dmertz]

Spreading out the contributions is a rule imposed by your employer and your employer's payroll department, not by the tax code; I can only speak to the tax code.  Of course if your contributions are being made by deferral from your paycheck, you can't defer any more from a particular paycheck than would otherwise be included in your paycheck.

If you make any contributions directly to your HSA, not through your employer, you can divide your contributions up into as many deposits as you like.  The benefit of making the HSA contributions through your employer is that the amount deferred from you paycheck to the HSA will not be subject to Social Security or Medicare taxes.