Partial year HSA

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JBTX
Posts: 5505
Joined: Wed Jul 26, 2017 12:46 pm

Partial year HSA

Post by JBTX » Thu Nov 07, 2019 8:04 pm

Suppose a new company starts a benefit plan in June, which would be 7 months of the calendar year. One medical benefit option is HDHP plan W HSA. During that 7 months you contribute full $7000. Next year you switch to non HSA eligible option within the same company.

Does that mean you will owe taxes and penalties on 5/12 of the $7500?

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MP123
Posts: 1075
Joined: Thu Feb 16, 2017 3:32 pm

Re: Partial year HSA

Post by MP123 » Thu Nov 07, 2019 8:18 pm

Because you had qualifying insurance on Dec 1 (last month rule) you could make the full HSA contribution for the year but only if you maintain the coverage for the next year.

So I'd say yes you (or the individual in question) over contributed.

Topic Author
JBTX
Posts: 5505
Joined: Wed Jul 26, 2017 12:46 pm

Re: Partial year HSA

Post by JBTX » Thu Nov 07, 2019 8:31 pm

Uggh. That's what I thought. I vaguely knew about this when I signed up, but figured it was worth the risk and a switch to a non HSA plan next year was unlikely. The plans changed and our situation changed a bit so I'm not sure which direction I'll go next year. It would be roughly $1200 of tax and penalty I'll have to weigh in.

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FiveK
Posts: 7741
Joined: Sun Mar 16, 2014 2:43 pm

Re: Partial year HSA

Post by FiveK » Thu Nov 07, 2019 8:32 pm

From https://www.irs.gov/pub/irs-pdf/p969.pdf,
If you fail to remain an eligible individual during the test-ing period, for reasons other than death or becoming disa-bled, you will have to include in income the total contribu-tions made to your HSA that wouldn’t have been made except for the last-month rule.
So yes, 5/12 of the previous year's contribution (assuming you contributed the maximum) will be subject to tax and penalty. Again from Pub 969,
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 calculated on Form 8889, Part III.

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