HSA Contributions Help

If an employer chooses to make HSA contributions for one employee, the employer generally must make comparable contributions on behalf of all eligible employees with comparable coverage during the same period, which is known as the "comparability rule." Contributions are considered comparable if they are the same amount or the same percentage of each employee's deductible under the high deductible health plan (HDHP). The comparability rule is applied separately to part-time employees (i.e., employees who are typically employed for fewer than 30 hours per week). Employers who do not comply with the comparability rule during a period will be subject to an excise tax of 35 percent of the aggregate amount contributed by the employer to HSAs for that period.
 
EXAMPLE: Shady Oaks Spa offers two health plans, including an HDHP with self-only coverage. For each employee electing the HDHP with self-only coverage, the employer contributes $1,000 per year to an HSA on behalf of the employee. For employees who do not elect the HDHP, the employer makes no HSA contributions. Shady Oaks Spa’s plan and HSA contributions satisfy the comparability rule.
 
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An HSA may be offered as an option under an employer’s cafeteria plan. In other words, an employee may elect to have amounts contributed as employer contributions to an HSA on a salary-reduction basis through the cafeteria plan. In fact, an employer could include both an HSA and an HDHP as options under its cafeteria plan, thus allowing an employee to contribute to the HSA and pay the premiums for the HDHP through salary reduction.
 
NOTE: The comparability rule does not apply to contributions made through a cafeteria plan.
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Contribution deadline: An HSA must be established and HSA contributions must be made by the eligible individual’s tax return due date for the year, not including extensions (i.e., April 15). This same deadline applies regardless of who makes the contribution.
 
One or more payments are permitted: Contributions for the year can be made in one or more payments. Although the annual contribution limit is determined monthly, the maximum contribution may be made on the first day of the year.
 
Contributions other than rollovers must be in cash: Annual contributions must be made in cash. Assets from Archer MSAs and other HSAs may be rolled over in-kind to an HSA.
 
HSA contribution form: Financial organizations accepting HSA contributions must keep records of contributions. Obtaining a completed HSA contribution form from the HSA owner is essential to maintaining precise records that, in turn, generate accurate reports.
 
Aggregated contributions: All HSA contributions, regardless of who makes the contribution, are aggregated for purposes of applying the contribution limit. Qualified HSA funding distributions and Archer MSA contributions also are aggregated for purposes of applying the HSA contribution limit made for the same calendar year.
 
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General rule: For an eligible individual that is covered by the same HDHP plan for the entire calendar year, the maximum annual contribution is the statutory limit of $3,600 in 2021 for those with self-only coverage, or $7,200 for those with family coverage. An HSA owner is treated as being covered by the same HDHP coverage (self-only or family) for the entire year as the coverage held on December 1.

NOTE: Contribution amounts may be adjusted for cost-of-living increases.

Contributions may be made by or on behalf of an eligible individual even if the eligible individual has no compensation, or the contributions exceed his or her compensation.

Catch-up contributions: Eligible individuals may make HSA catch-up contributions of up to $1,000 annually. For eligible individuals who are married and have family coverage, each spouse who is an eligible individual may make a catch-up contribution to his or her own HSA.

If an eligible individual will attain age 55 or older by the end of the calendar year, and he or she is an eligible individual for the entire year, he or she may make a full catch-up contribution.

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HSA eligibility is determined on the first of each month. If an HSA owner changes HDHP coverage from self-only to family or family to self-only, she can add up the monthly limit for each month she was covered to determine her annual contribution limit, or she can determine her contribution limit as if she was covered by the same HDHP coverage for the entire year as the coverage held on December 1. With this rule, the HSA owner may increase, but does not have to decrease the contribution limit. For example if an HSA owner has self-only coverage throughout 2021, but switches to family coverage on November 1, 2021, and has family coverage through December 31, 2021, the HSA owner’s contribution limit is the family coverage contribution limit of $7,200 for 2021.

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Once an individual enrolls in Medicare, contributions, including catch-up contributions, cannot be made beginning with the month the individual enrolls.

EXAMPLE: EXAMPLE: Pearl, who is covered under an HDHP with self-only coverage, attains age 65 and enrolls for Medicare benefits on March 1, 2021. Her 2021 contribution limit is 2/12 of the statutory contribution limit. She may make contributions for January and February but may not make any contributions for March through December 2021 or thereafter.

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If both spouses are eligible individuals, the total contribution limit for both spouses cannot exceed the family coverage maximum contribution, divided equally between the spouses unless they agree upon a different division. Regardless of how the limit is divided between the spouses, the aggregate contributions between the two spouses cannot exceed the maximum annual contribution amount for family coverage, (i.e., $7,200 for 2021).

EXAMPLE: Leah and Jon are married. They are both 42 years old and both have family coverage under HDHPs. In this scenario, Leah and Jon in aggregate cannot exceed a contribution of $7,200 for 2021. Each may contribute $3,600 to an HSA for 2021.

Catch-up contributions: One or both spouses may make catch-up contributions, if age eligible. For example, if both spouses are age 55 or older by the end of 2021, total contributions to their HSAs cannot exceed $9,200 ($7,200 maximum limit + $1000 catch-up for each spouse), when both have family coverage.

Archer MSA contributions: The family coverage limit is reduced by any contributions to Archer MSAs.

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Contributions made by an eligible individual: HSA contributions made by an eligible individual or his or her family members are deductible by the eligible individual when determining his or her adjusted gross income. Contributions are deductible whether or not the eligible individual itemizes deductions.
 
NOTE: The individual cannot also deduct the contributions as medical expense deductions.
 
Employer contributions: HSA contributions made by an employer to employees’ HSAs may be deducted by the employer. These contributions are excluded from the employees’ gross income, are not subject to withholding for income tax, and are not subject to the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), or the Railroad Retirement Tax Act (RRTA).
 
NOTE: Contributions to an employee’s HSA through a cafeteria plan are treated as employer contributions. The employee cannot deduct employer contributions on his or her federal income tax return as HSA contributions or as medical expense deductions.
 
Tax-deferred earnings: Earnings on amounts in an HSA are tax-deferred and are not includable in gross income while held in the HSA.
 
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HSA contributions that exceed the contribution limit for the year, or contributions made by an ineligible individual, are considered excess HSA contributions. Excess contributions cannot be deducted on the individual’s tax return. Excess contributions made by employers are included in gross income by the employee to the extent they exceed the contribution limit (i.e., the employer must include this excess amount on the employee’s Form W-2, Wage and Tax Statement, as taxable wages).
 
A six percent excess contribution penalty tax is imposed on the HSA owner for each tax year the excess contribution remains in the account. If, however, the excess contribution for a tax year and the net income attributable (NIA) to the excess are paid to the owner by his or her tax return deadline, plus extensions (or by the end of the automatic six-month extension, for timely tax return filers), the excise tax does not apply. The excess contribution is not taxed when distributed, but the NIA is included in the HSA owner’s income for the tax year in which the distribution is withdrawn, and is generally subject to an additional 20 percent penalty tax.
 
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