HSA owners can change their contribution amount at any time during the plan year, subject to the annual limit. (Annual contribution limits are set by the IRS each year.) However, their annual limit will differ if they have a mid-year coverage change from individual HDHP coverage to family HDHP coverage or vice versa. Here’s how to calculate the contribution limit change.
Status Changes and Contribution Limits
Full Contribution Rule
Under the “Full Contribution Rule” (IRS Notice 2008-52, published in IRB 2008-25, page 1166), the annual contribution limit for an HSA can increase, but not decrease, due to a change in coverage status. HSA-eligible individuals experiencing a mid-year coverage change will have their new annual contribution limits determined by whichever of the following two options results in the highest amount:
- Option 1: The annual contribution limit is based on actual HDHP coverage (individual or family) for each month of the tax year, calculated monthly, added together, and then divided by 12 to determine the annual limit.
- Option 2: The maximum annual contribution limit for the entire tax year is based on actual HDHP coverage (individual or family) as of December 1.
See examples below of both options.
Family to Individual Coverage Status Change
John Smith has family coverage for the 2025 plan year and will contribute the $8,550 maximum to his HSA. However, starting in July, he switches to individual coverage, with a $4,300 annual contribution limit. Under the Full Contribution Rule, Smith’s new yearly contribution limit for 2025 is $6,425.
Here’s why. Under Option 1, averaging together six months of Family coverage and six months of Individual coverage creates an annual limit of $6,425. Under Option 2, the limit would be just $4,300 because he had Individual coverage as of December 1. The ‘greater of’ provision of the Full Contribution Rule allows him the higher amount of $6,425 for that plan year.
Here’s how that was calculated.
| Month | Coverage Level | Annual Contribution |
| January | Family | $8,550 |
| February | Family | $8,550 |
| March | Family | $8,550 |
| April | Family | $8,550 |
| May | Family | $8,550 |
| June | Family | $8,550 |
| July | Individual | $4,300 |
| August | Individual | $4,300 |
| September | Individual | $4,300 |
| October | Individual | $4,300 |
| November | Individual | $4,300 |
| December | Individual | $4,300 |
| Total for all 12 months | $77,100 | |
| Annual Limitation (Divide Total by 12) | $6,425 |
Individual to Family Coverage Status Change
What if John starts with Individual coverage but switches to Family coverage starting in September? Option 1 would result in an annual limit of $5,717 (8 months of $4,300 and 4 months of $8,550, totaled and then averaged). However, Option 2 would result in a limit of $8,550 because he had Family coverage on December 1. Due to the ‘greater of’ provision of the Full Contribution Rule, his yearly contribution limit would change to $8,550 for that plan year.
Failing to understand how a mid-year change in coverage affects your annual contribution limit can result in accidental excess HSA contributions or a lost opportunity to contribute a higher amount. Refer to IRS Notice 2008-52, or your qualified benefits counsel for more information.
Beneliance has provided Arkansas employers with comprehensive third-party employee benefits administration and compliance services since 1996. Please enter your email (above right) to receive notifications about new blog articles as they are published.
