HDHP Family Coverage and the HSA Contribution Limit
By Olivia Theveny, JD
What is the HSA contribution limit for individuals with family HDHP coverage?
The maximum annual health savings account (HSA) contribution for family high deductible health plan (HDHP) coverage is $7,000 for 2019 and $7,100 for 2020. The statutory limit for HSA contributions is subject to potential annual cost-of-living adjustments (COLAs). Individuals who turn age 55 or older before the end of the tax year are eligible for an additional $1,000 catch-up contribution, which is not subject to COLAs.
Although many financial institutions have what they refer to as “family HSAs,” all HSAs are individual accounts; joint, or family, HSAs are not permitted.
If an individual changes to family HDHP coverage mid-year, can that person contribute the full contribution limit for family HDHP coverage that year?
When an HSA owner switches coverage mid-year and remains HSA-eligible as of the first day of the last month of her tax year, she will be eligible to contribute the greater of
the sum of monthly pro-rated amounts based on the HSA owner’s eligibility and plan type, or
the maximum statutory limit for the kind of HDHP coverage in effect as of the last month of the HSA owner’s tax year.
Additional details regarding the “last-month rule” may be found in the instructions for IRS Form 8889, Health Savings Accounts (HSAs).
When an HSA owner switches from self-only to family HDHP coverage before the last month of her tax year, she will be eligible to contribute the statutory family limit for the year because it will always exceed the sum of her monthly limits. However, the HSA owner must also remain HSA-eligible for a 13-month testing period. This testing period runs from December 1 through December 31 of the following year for most taxpayers. If the HSA owner fails this testing period (becomes ineligible to contribute to an HSA), any of her ineligible contributions may not be removed as an excess, but must be included in income for the year of the failure and are subject to an additional 10 percent penalty tax for failing the testing period.
Financial organizations are not responsible for tracking whether an HSA owner satisfies the 13-month testing period under the last-month rule.
If an individual has family HDHP coverage and she and her spouse each have an HSA, how much can each of them contribute to their respective HSAs?
If either or both spouses is covered by a family HDHP, the spouses must share a single statutory family contribution limit. They may allocate the limit between each other however they choose. However, this rule does not apply to the additional $1,000 catch-up contribution for individuals age 55 and up. The catch-up contribution is available only on an individual basis and cannot be shared or split between spouses.
Example
Rita is 56 years old and her spouse, John, is 53. Rita has an HDHP with family coverage through her employer, which covers her and a child, and John has self-only coverage through his employer. They both have their own HSAs. For 2019, Rita and John have a family HDHP statutory contribution limit of $7,000 that they must share. One spouse may contribute the full $7,000 to his or her own HSA, or they may split a total of $7,000 in contributions between their respective HSAs. This remains the case even if John also had family HDHP coverage, either through Rita’s employer or his own. Rita is also eligible to make an additional $1,000 catch-up contribution to her HSA in 2019, on top of whatever portion of the $7,000 family limit she contributes. Rita cannot allocate any portion of her $1,000 catch-up contribution to John’s HSA.
If a nondependent child under age 26 is still covered by a parent’s HDHP, may that child contribute to his own HSA? If so, what is his contribution limit?
If a child is covered by a parent’s HDHP and is otherwise eligible (not covered by any non-HDHP, is not enrolled in Medicare, and is not eligible to be claimed as a dependent on another person’s tax return), that child may establish and contribute to his own HSA and use that HSA’s assets to pay his qualified medical expenses under the HSA eligibility rules.
An HSA owner’s contribution limit is generally determined based on the type of HDHP coverage in effect. When a child has coverage under a parent’s HDHP, because that HDHP covers more than one individual, the statutory contribution limit for family coverage would apply. Although there is no direct guidance from the IRS regarding the contribution limits for nondependent children, the rules regarding aggregation of the family limit (outlined above) specifically apply only to spouses. Therefore, it follows that a nondependent child covered under a family HDHP would have his own, separate family contribution limit. Ascensus has received informal confirmation from an IRS official that a separate family contribution limit would apply for a child under these circumstances.
Note that an HSA owner cannot take a qualified distribution from her HSA to pay for the medical expenses of a child whom the HSA owner does not claim as a dependent on her tax return, regardless of whether that child is covered under the parent’s HDHP. There is no restriction on taking a distribution to pay for those medical expenses, but any such distribution would be considered nonqualified and, accordingly, would be taxed to the HSA owner as income and further be subject to an additional 20 percent penalty tax for nonqualified distributions.
