Contribution Rule Limits

While most taxpayers may not contribute the maximum amount allowed to their HSA, you may need to explain these limits to taxpayers. The amount that can be contributed to an HSA depends on the:

• Type of HDHP coverage (self-only or family coverage)
• Taxpayer's age
• Date the taxpayer became an eligible individual, and
• Date the taxpayer ceases to become an eligible individual.

If the taxpayer is an eligible individual on the first day of every month with the same coverage for the entire year, the full contribution amount is allowed.

If the taxpayer was not an eligible individual for the entire year or changed his or her coverage during the year, the contribution limit is the greater of the:

• Last-month rule (also known as the full contribution rule). Maximum annual HSA contribution is based on the first day of the last month of the person's taxable year (December 1 for most taxpayers) plus catch-up contributions. The taxpayer is considered to have been an eligible individual for the entire year. The taxpayer is treated as enrolled in the same HDHP coverage for the entire year. A testing period (covered later in this lesson) applies to this rule.
  OR
• Sum of the monthly contribution limits rule (use Line 3 Limitation Chart and Worksheet in Form 8889 Instructions). This is the amount determined separately for each month based on eligibility and HDHP coverage on the first day of each month plus catch-up contributions.

A taxpayer who cannot use the last-month rule must use the sum of the monthly contribution limits rule to determine the maximum HSA contribution.

In the software, Line 3 Limitation Worksheet is at the bottom of Form 8889, page 1. You will also need the Instructions for Form 8889. To view the instructions in the software, click anywhere on the form to access the help feature.