Contributions to a Health Savings Account (HSA)
Maximum Contributions
For 2011, the maximum can you can contribute to a Health Savings Account is a $3,050 for individuals with self-only coverage and $6,150 for individuals with family coverage.
For 2012, the maximum can you can contribute to a Health Savings Account is a $3,100 for individuals with self-only coverage and $6,250 for individuals with family coverage.
Minimum Contributions
After you establish your HSA, making at least the minimum contribution required by your trustee or custodian to open your account, you are not required to make any additional contributions to your HSA.
Catch-Up Contributions
HSA holders age 55 and older may make additional annual contributions of $1,000. If both spouses are 55 or older and both are eligible to contribute to an HSA, then both spouses may make a catch-up contribution annually but must open separate HSA accounts (one in each spouse’s name). Each spouse can contribute up to $1,000 to their respective accounts.
Employers must follow certain rules governing their contributions, depending on the situation under which their contributions are made. If an employer offers a Section 125 “cafeteria” plan and either makes matching contributions or allows employees to make their own HSA contributions via salary reduction, the contributions are subject to non-discrimination rules. These rules are the same rules that apply to contributions for retirement plan and other benefits. The rules are intended to ensure that contributions do not favor highly compensated employees over lower paid employees.
If an employer does not offer a Section 125 “cafeteria” plan, the employer’s contributions must be “comparable” for all similarly situated employees. Contributions are considered comparable if they are the same dollar amount or same percentage of each employee’s HDHP deductible. The employer may make comparable contributions for all HSA-eligible employees or it may make comparable contributions within certain permitted classes of employees. For example, an employer may make higher contributions for employees with family coverage compared to employees with self-only coverage. An employer may also make different contributions for full-time employees compared to part-time employees. However, an employer may not vary contributions based on length of service with the company or age of employees.
For any year that you drop or lose your HSA-qualified coverage before the end of the year, you will not be able to make the full contribution to your HSA. You will need to pro-rate your contribution for that year. Count only those months for which you had HSA-qualified coverage on the first day of the month. For example, if you lose or drop your HSA-qualified coverage at the end of June, you would only be able to contribute 50% of your allowed contribution for that year.
Contribution Deadlines
HSA contributions for a given year must be made on or before the due date (without extensions) for filing tax returns for that year. That means for most years contributions must be made on or before April 15 of the following calendar year.
Contributions Not Tied to HDHP Deductibles
HSA contributions are no longer limited by the amount of your HDHP deductible. This means that even if you are covered by an HDHP with the minimum deductible (i.e., $1,200 for individuals with self-only coverage or $2,400 for individuals with family coverage), you may still contribute up to the full amount to your HSA (i.e., $3,050 for individuals with self-only coverage or $6,150 for individuals with family coverage in 2011). On the other hand, if you purchase an HDHP with a deductible higher than the annual HSA contribution limit, your 2011 HSA contribution will still be limited to $3,050 for individuals with self-only coverage or $6,150 for individuals with with family coverage.
HSA Contributions must be Cash
Health Savings Account (HSA) contributions must be in cash. For example, contributions cannot be made in stock or other property.
One-time transfer from IRAs to HSAs.
You are allowed to make a one-time tax-free rollover of funds from an Individual Retirement Account (IRA) to your HSA. The contribution must be made in a direct trustee-to-trustee transfer. This type of rollover is not taxable as income or subject to any penalties for early withdrawal from the IRA. The transfer is limited to the maximum HSA contribution for the year in which the transfer is completed, and the amount contributed is not allowed as a deduction on personal income taxes like normal HSA contributions. Be aware that if you do not remain covered by an HDHP for the 12 months following the IRA to HSA rollover, the transferred amount must be included in your income and is subject to a 10% tax penalty.
Excess HSA Contributions
You are not allowed to contribute more than the annual limit to your HSA. Contributions in excess of the annual limit may be withdrawn by the tax filing deadline without penalty (a pro-rata share of earnings on the excess amount must also be withdrawn). Excess contributions remaining in the account after the tax filing deadline must be withdrawn and are subject to a 6% excise tax. Contributions by an employer that exceed the annual HSA limits are taxable as income to the employee.
Investment Earnings Accrue Tax-free.
Any earnings on the HSA funds resulting from interest or investment accrue tax-free within the HSA account. This allows account balances to grow faster and enhances the savings aspect of the accounts.
What information must be reported?
HSA reporting requirements are straightforward. Form 5498 is used to report total contributions made to the account during the year and the value of the account at the end of the year. Both the form and instructions for completing the form are available from the IRS or can be downloaded from the Treasury and IRS web sites.
Rollovers are Permitted
Rollover contributions from Archer MSAs and other HSAs are permitted. Rollovers are not subject to the annual contribution limits.
Contributions for Partial Year Coverage
A 2006 change in the HSA law allows individuals whose HDHP coverage begins part of the way into the year to make the full annual contribution amount for their first year of HSA eligibility. This change in the law was intended to help people fully fund their HSA accounts, especially since many insurance plans apply the full year deductible amount even though coverage might be in effect less than 12 full months. To take advantage of this rule, the individual’s HDHP coverage must take effect any time after January 1 but no later than December 1. Normally, less than full-year HDHP coverage would require the individual to pro-rate their HSA contribution for the year based on the number of months they had HDHP coverage. However, to avoid having to pay back any of the “extra” contribution amount, the individual must remain covered by an HDHP through December 31 of the following calendar year. If the individual does not remain covered by HDHP during this “testing period,” the extra amount (i.e., the difference between the amount actually contributed and the pro-rated amount that would have been allowed) must be included in the individual’s income and will be subject to a 10 percent additional tax. If you are unsure or know that you’re not going to keep your HDHP coverage through December 31of the following year, you may be better off prorating your contributions for your first year of HSA eligibility.
Employer Contributions
An employer may contribute to employees’ HSAs. These contributions are deductible as a business expense to the company and are not taxable to the employee (i.e., “pre-tax”). Employers may contribute a set amount or may make “matching” contributions. Matching contributions can only be made if the employer offers a Section 125 “cafeteria” plan.
