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Exceeding HSA Limits

A health savings account, HSA, is a tax-advantaged account to save money for qualified medical expenses. To have an HSA, you must have an HSA-qualified, high-deductible health insurance plan, either as an individual policy or as a participant in an employer's group plan. Because the funds deposited into an HSA are tax-deductible, the Internal Revenue Service sets a contribution limit annually. Deposits that exceed this limit can incur penalties.

  1. Annual Contribution Limit

    • Each year, the Internal Revenue Service determines how much can be contributed into an HSA. For 2011, the amounts are $3,050 for an individual and $6,150 for a family HSA plan. If you are 55 or older, you can contribute an additional $1,000 "catch-up" contribution. Contributions can be made into an HSA throughout the calendar year, and like an IRA, until the federal income tax filing deadline in April -- or the date an individual files his tax return if before the due date.

    Adjustments to Contribution limits

    • The "Last Month Rule" -- explained in IRS Publication 969 -- permits an individual who is eligible for an HSA on the first day of the last month of the tax year, usually December 1, to contribute as if the individual is eligible for the entire year. If an individual becomes ineligible for an HSA in the year following that, he will have to recalculate his eligible contributions based on how long he participated in ah HSA-qualified plan. Instructions for recalculating the deductible amount are explained in Publication 969. Contributions over the deductible amount will need to be included as taxable income and are subject to a six percent excise tax.

    Excess Contributions

    • If you make deposits into your HSA that either exceed the IRS limit or your adjusted limit based on eligibility, the IRS defines these as excess contributions. Excess contributions are subject to a six percent excise tax. Any interest or earnings in your HSA based on excess contributions are subject to the excise tax, too. Excess contributions are added to your taxable income. If your employer made excess contributions, they will be added to your gross income on your W-2.

    Correcting Excess Contributions

    • If you realize that you have excess contributions in your HSA before filing your tax return, you can avoid the excise tax by withdrawing the excess amount and any earnings on that amount. The earnings will have to be reported on your tax return as "Other Income." You have until the filing date for your federal tax return, including extensions, to make this correction to your HSA. If you discover the error after filing your tax return, you will be responsible for the excise tax.

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