HDHP Part of Year, HSA Max Contribution

Question

What HSA contribution limits exist if a person for a portion of the year had an HDHP plan and for another portion of the year had a co-pay plan?

Examples:

Jane worked for Company A for four months of the 2014 year and had their co-pay plan. She moved to Company B and took their HDHP plan, and began having automatic deductions go into her HSA account. At the end of the year, she had contributed $2500 and wanted to add another $800 ($3300) to her HSA account for the tax year of 2014 before the IRS deadline (usually April the following year).

John worked for Company Y three-quarters of the 2014 tax year, but changed companies due to rising healthcare costs, to Company Z. He only contributed three months of earnings to his new HSA account for his new HDHP and wanted to cap of the 2014 tax year by maxing out his HSA account.

Answer 1

from the HSA for America FAQ

If you do not keep your coverage for at least 12 months, the contribution limit will be pro-rated based on the number of months in which your HSA-eligible health insurance was in effect. For example, if your coverage begins on May 1 and is in effect only through December, you will only be allowed to deposit 8/12 of the annual contribution limit.

However, if you are eligible to contribute to an HSA on the first day of the last month of the tax year(Dec 1st), you may make a full contribution for the year. However, if you lose eligibility while you are still in the test period(the end of the next year), you will be required to pay taxes on the extra amount, along with a %10 penalty

IRS Pub 969

Last-month rule. Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month.

Testing period. If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month. For example, December 1, 2013, through December 31, 2014.

If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the total contributions made to your HSA that would not have been made except for the last-month rule. You include this amount in your income in the year in which you fail to be an eligible individual. This amount is also subject to a 10% additional tax. The income and additional tax are shown on Form 8889, Part III

Jane(assuming she went straight from one health plan to the next) has a contribution limit of 8/12 of $3300, or $2200. She has already exceeded this, so her company must be assuming she is taking advantage of the last month rule. Under that rule, she can contribute $800 more before April 15th.

John, assuming the same, and that the HSA is with the new company, has a contribution limit of 3/12 of $3300 or $825. If he wishes to use the last month rule, he may make contributions up to the $3300 limit, but he must stay eligible for an HSA for the following year.