Contributions to an employee’s health savings account (HSA) may be made by the employee or employer, provided the employee meets the four eligibility conditions. (See HSAs: Eligibility and High Deductible Health Plans (HDHPs) for details.) The IRS sets a limit on the individual’s total annual contributions, regardless of whether they are made by the employee or employer. The limit is adjusted each year for inflation.

Annual Contribution Limit

The maximum HSA contribution limit applies on a calendar year (not plan year) basis as follows:

  • For calendar year 2023:
    • $3,850 if self-only HDHP; or
    • $7,750 if family HDHP coverage.
  • For calendar year 2024:
    • $4,150 if self-only HDHP; or
    • $8,300 if family HDHP coverage.

In addition to the above limits, employees 55 or older may make a catch-up contribution of up to $1,000 per calendar year. If the employee’s spouse is also 55 or older and HSA-eligible, they can establish their own HSA account and make a catch-up contribution to their account. If only one of them (employee or spouse) owns an HSA, only that individual can make the $1,000 contribution.

Married Individuals

The IRS treats married couples as a single tax unit, which means they must share one family HSA contribution limit of $7,750 in 2023 or $8,300 in 2024. If both spouses have self-only HDHP coverage, each spouse may contribute up to $3,850 in 2023 or $4,150 in 2024, each year in separate accounts. There is no such thing as a “joint” HSA, even for married individuals. Married individuals can choose to make all contributions to one HSA account owned by one of the spouses or they can each have their own account. However, if either spouse has family-level HDHP coverage they must split the maximum contribution threshold for families between the two accounts.

Married couples where both spouses are 55 or over can each make an additional $1,000 contribution to their separate HSA account.

Deposits

Contributions may be deposited as soon as the employee meets the four eligibility conditions or up until that year’s tax filing deadline. The deadline typically is April 15 of the following year. People serving in, or in support of, the U.S. Armed Forces in a designated combat zone or contingency operation may be able to file later. See Pub. 3, Armed Forces Tax Guide for details.

Monthly Limits

Eligibility for HSA contributions is determined monthly, as of the first day of each month, so the IRS annual limit is prorated if the employee does not meet the four eligibility conditions for the entire year. For instance, if the employee is HSA-eligible with self-only HDHP coverage for January through August (2024), then loses eligibility, their maximum annual contribution will be $2,766.64 (i.e., 8/12 of $4,150).

Caution: Medicare is a disqualifying coverage, so HSA contributions cannot be made for any months in which the employee is enrolled in Medicare. Although Medicare is typically available at age 65, some employees delay enrolling until a later date. When an individual does request to enroll, the government’s system will automatically backdate the enrollment in Part A to either their 65th birthday or six months before the enrollment request. Coverage cannot begin earlier than age 65. Any HSA contributions made during the six-month backdate will be disqualified and taxes will apply. The Medicare website warns applicants over 65 to cease HSA contributions up to six months before applying for Medicare.

Special Last-Month Rule

The IRS provides a special provision known as the last-month rule (also called the 13-month rule) that allows the employee to make the full annual HSA contribution for a calendar year if they are HSA-eligible as of December 1 of that year and remain HSA-eligible throughout the following calendar year. For instance, if the employee meets the four eligibility conditions as of December 1, 2023, and remains HSA-eligible for all 12 months of 2024, they may contribute the full HSA annual limit for both 2023 and 2024. If, however, the employee loses HSA eligibility before 2023 ends, the HSA contribution limit for each year will be prorated based on each month of eligibility.

Contributions to a Cafeteria Plan

A cafeteria plan, also called a § 125 plan, allows employees to reduce their taxable salary to make pretax contributions for qualified benefits. The employer may design its cafeteria plan to offer employees the choice of making HSA contributions. In that case, the contributions avoid federal payroll taxes (e.g., FICA), along with federal income taxes and state income taxes (except in California and New Jersey). If the cafeteria plan allows HSA contributions, then any contributions the employer makes to its employees’ HSAs are considered part of the cafeteria plan, too.

Contributions may be made through payroll but outside of a cafeteria plan; in that case, payroll taxes (e.g., FICA) would apply. Also, cafeteria plans are limited to employees. Non-employees, such as 2%-or-more shareholders in Subchapter S corporations, partners in limited liability partnerships (LLPs), and members in limited liability companies (LLCs) are considered self-employed individuals who cannot participate in a cafeteria plan.

Lastly, employees can also contribute to their HSAs outside of payroll (or after leaving the workplace), provided the four eligibility conditions are met. In that case, the employee deposits contributions to the HSA on an after-tax basis and then deducts the contributions for income tax purposes when filing that year’s tax return.

In summary, making HSA contributions through a cafeteria plan, instead of other methods, provides the greatest tax advantages—to the employee and employer—since it avoids payroll taxes (e.g., FICA) along with income taxes.

HSA Custodian

The HSA must be held at a bank, brokerage, or other financial institution that is approved by the IRS as an HSA custodian (also called an HSA trustee). HSA funds can be invested in the same type of investments permitted for IRAs, including stocks, bonds, mutual funds, CDs, or simple savings. The employee, as the HSA accountholder, controls the funds and makes all investment decisions.

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