HSA owners can change their contribution amount at any time during the plan year, subject to the annual limit. (Annual contribution limits are set by the IRS each year.) However, their annual limit will be different if they have a mid-year coverage change from individual HDHP coverage to family HDHP coverage, or vice versa. Here’s how to calculate the contribution limit change.
Status Changes and Contribution Limits
Full Contribution Rule
Under the “Full Contribution Rule” (IRS Notice 2008-52, published in IRB 2008-25, page 1166), the annual contribution limit for an HSA can increase, but not decrease, due to a change in coverage status. HSA-eligible individuals experiencing a mid-year coverage change will have their new annual contribution limits determined by whichever of the following two options results in the highest amount:
- Option 1: The annual contribution limit is based on actual HDHP coverage (individual or family) for each month of the tax year, calculated monthly, added together, and then divided by 12 to determine the annual limit.
- Option 2: The maximum annual contribution limit for the entire tax year is based on actual HDHP coverage (individual or family) as of December 1.
See examples below of both options.
Family to Individual Coverage Status Change
John Smith has family coverage for the 2024 plan year and will contribute the $8,300 maximum to his HSA. However, starting in July, he switches to individual coverage, with a $4,150 annual contribution limit. Under the Full Contribution Rule, Smith’s new annual contribution limit for 2024 is $6,225.
Here’s why. Under Option 1, averaging together six months of Family coverage and six months of Individual coverage creates an annual limit of $6,225. Under Option 2, the limit would be just $4,150 because he had Individual coverage as of December 1. The ‘greater of’ provision of the Full Contribution Rule allows him the higher amount of $6,225 for that plan year.
Here’s how that was calculated.
| Month | Coverage Level | Annual Contribution |
| January | Family | $8,300 |
| February | Family | $8,300 |
| March | Family | $8,300 |
| April | Family | $8,300 |
| May | Family | $8,300 |
| June | Family | $8,300 |
| July | Individual | $4,150 |
| August | Individual | $4,150 |
| September | Individual | $4,150 |
| October | Individual | $4,150 |
| November | Individual | $4,150 |
| December | Individual | $4,150 |
| Total for all 12 months | $74,700 | |
| Annual Limitation (Divide Total by 12) | $6,225 |
Individual to Family Coverage Status Change
What if John starts with Individual coverage but switches to Family coverage as of September 1? In that case, Option 1 would result in an annual limit of $5,533. However, Option 2 would result in an annual limit of $8,300 because he had Family coverage on December 1. Due to the ‘greater of’ provision of the Full Contribution Rule, his annual contribution limit would change to the higher amount of $8,300 for that plan year.
Failing to understand how a mid-year change in coverage affects your annual contribution limit can result in accidental excess HSA contributions or a lost opportunity to contribute a higher amount. Refer to IRS Notice 2008-52, or your qualified benefits counsel for more information.
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