How to Calculate HSA Contribution Limits
Optimize your Health Savings Account (HSA) by learning to accurately calculate contributions. Maximize tax savings and avoid common pitfalls.
A Health Savings Account (HSA) offers a unique way to manage healthcare costs with significant tax advantages. It functions as a personal savings account that can be used for qualified medical expenses, both current and future. Understanding the annual contribution limits for an HSA is important to maximize these benefits and avoid potential penalties. The Internal Revenue Service (IRS) establishes these limits annually, and adherence to these guidelines ensures compliance.
Eligibility for HSA Contributions
To contribute to a Health Savings Account, an individual must be covered by a High Deductible Health Plan (HDHP). For 2025, an HDHP must have a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. The plan’s annual out-of-pocket expenses, which include deductibles, co-payments, and other amounts but exclude premiums, cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.
Individuals are ineligible if covered by other non-HDHP health insurance, though certain exceptions exist for vision, dental, or specific illness policies. Individuals enrolled in Medicare or those claimed as a dependent on someone else’s tax return also cannot contribute to an HSA.
Standard Annual Contribution Limits
The IRS sets the maximum amount individuals can contribute to an HSA each year, with these limits subject to annual adjustments to account for inflation. For 2025, the annual contribution limit for an individual with self-only HDHP coverage is $4,300. This amount applies when the health plan covers only the eligible individual.
For those with family HDHP coverage, the annual contribution limit for 2025 is $8,550. These limits encompass all contributions made to the HSA, including those from the individual, their employer, or any other party.
Adjusting Contributions for Specific Situations
Individuals who become eligible for an HSA mid-year, or lose eligibility during the year, must prorate their contributions based on the number of months they were eligible. The “last-month rule” allows an individual who is HSA-eligible on the first day of the last month of their tax year (December 1 for most) to contribute the full annual amount, provided they remain HSA-eligible for a 12-month “testing period” following that last month. If the testing period is not met, previously untaxed contributions may become taxable, along with an additional 10% penalty.
Individuals aged 55 and older can contribute an additional “catch-up” amount to their HSA. For 2025, this additional contribution is $1,000. This catch-up contribution is added to the standard annual limit and can be made by each eligible individual aged 55 or older. Both spouses in a family HDHP can make this additional contribution if both meet the age and eligibility requirements. Each spouse must make their catch-up contribution to their separate HSA, as joint HSAs are not permitted.
When both spouses are HSA-eligible, they cannot exceed the family contribution limit combined. If one spouse has family coverage, the household’s total contribution is capped at the family limit, which they can divide between their separate accounts as they choose. If both spouses have self-only HDHP coverage, each can contribute up to the individual limit to their respective HSAs.
Consequences of Exceeding Limits
Contributing more than the allowed amount to an HSA can result in penalties. Any excess contributions are subject to a 6% excise tax for each year the excess amount remains in the account. This tax applies to both the excess contribution itself and any earnings attributable to that excess. This penalty is assessed annually until the excess is corrected.
To correct an excess contribution, the account holder must withdraw the excess amount, along with any net income attributable to it, by the tax filing deadline, including extensions, for the year the excess occurred. This withdrawal should be reported on IRS Form 8889, which is used to report HSA contributions and distributions. Failure to remove the excess by the deadline will result in the 6% excise tax for that year and potentially subsequent years if the excess remains.