Individuals who were HSA-eligible in 2023 have until the tax filing deadline, April 15, 2024, to make or receive 2023 HSA contributions. The 2023 HSA contribution limit is $3,850 for self-only HDHP coverage and $7,750 for any tier of HDHP coverage other than self-only. Employer HSA contributions, if any, are included in the applicable limit. Those aged 55 and older are permitted an additional catch-up contribution of $1,000. As indicated below, April 15, 2024, is also the deadline for individuals to remove 2023 excess contributions (i.e., contributions exceeding their permitted maximum) from their HSA to avoid potential penalties.
Under the HSA monthly contribution rule, an individual’s maximum 2023 annual contribution is limited by the number of months they were HSA-eligible during the calendar year. HSA eligibility is determined on the first day of each month. As a reminder, to be HSA-eligible, an individual must be covered by a qualified HDHP, not be eligible to be claimed as a tax dependent of another, not be covered by Medicare or other impermissible coverage (i.e., coverage providing benefits before the statutory HDHP minimum deductible is met, absent a specific exception).
There is an exception to the monthly contribution rule known as the full or last month contribution rule. Under the full contribution rule, an individual who was HSA eligible on December 1, 2023, is permitted to contribute up to the full statutory limit for the year based on their HDHP coverage tier. However, if the individual does not remain HSA eligible through December of the following year (i.e., December 2024), the amount exceeding their permitted maximum under the monthly contribution rule becomes taxable as income and subject to an additional 10% penalty tax.
Individuals who contributed more than their allowable HSA contribution amount for 2023 should remove the excess contributions and associated earnings by April 15, 2024. The excess and earnings will be subject to income tax. If an individual fails to remove the excess contribution by the income tax filing deadline, an additional 6% penalty applies for each tax year the excess remains in the account. Accordingly, employees who were not eligible for a contribution or contributed more than their permitted maximum through their employer’s cafeteria plan should notify their employer and work with the HSA custodian to remove the excess contribution. Employees should consult with their tax advisors for specific tax advice and guidance.
For further information, please see IRS Publication 969, or download a copy of the PPI publication Health Savings Accounts: A Guide for Employers.
