I have a client with a few new hires that will have a 9/1 effective date. The client offers an HSA for employees who enroll in the high deductible health plan. Are there any restrictions for contribution amounts for any new hire employee who enrolls in the HDHP?
HSA contribution limits are calculated on a monthly basis, and an individual’s annual HSA contributions may not exceed the sum of the monthly limitations for the months in which the individual is treated as HSA-eligible. However, the full-contribution rule (sometimes called the last-month rule) allows a full year’s worth of HSA contributions for someone who is HSA-eligible for only a portion of the year. Under the rule, an individual who becomes covered under an HDHP during the year and is HSA-eligible on December 1 of that year (that is, has HDHP coverage and no disqualifying coverage) is treated as having been an eligible individual during every month of the year and will be allowed to make contributions (or have them made on their behalf) for those months during the year before the individual actually enrolled in the HDHP. Individuals who make contributions in reliance on the full-contribution rule must remain covered by an HDHP through the end of the following calendar year to avoid adverse tax consequences. If the individual loses HSA-eligibility during the following year for reasons other than death or disability, the additional contributions made under the full-contribution rule will be included in the individuals gross taxable income and a 10% additional tax will also apply.