HSA Contribution Limit: Rules and Consequences
Navigate Health Savings Account contribution rules to maximize your tax benefits and maintain compliance with IRS regulations.
A Health Savings Account, or HSA, is a tax-advantaged savings account for individuals enrolled in a high-deductible health plan (HDHP), designed to help set aside funds for medical expenses. The account offers a triple-tax advantage. Contributions are tax-deductible, which can lower your taxable income for the year. Once in the account, funds can be invested to grow tax-free, and withdrawals for qualified medical expenses are also tax-free.
To be eligible to open and contribute to an HSA, an individual must be covered by an HDHP, not be enrolled in Medicare, and cannot be claimed as a dependent on someone else’s tax return.
Annual Contribution Limits
The Internal Revenue Service (IRS) establishes the maximum amount of money that can be contributed to an HSA each year. For 2025, individuals with self-only HDHP coverage can contribute up to $4,300. Those with family coverage are permitted to contribute up to $8,750. These limits are indexed for inflation and may be adjusted annually by the IRS.
Self-only coverage is a plan that covers only one individual, while family coverage includes the account holder and at least one other person, such as a spouse or dependent. The type of coverage you have dictates which contribution limit applies to you. You have until the tax filing deadline, typically in April of the following year, to make contributions for the current tax year.
Individuals age 55 or older by the end of the tax year can make an additional “catch-up” contribution of $1,000 per year. If both spouses in a marriage are 55 or older, they can each contribute an additional $1,000. However, each spouse must make their catch-up contribution to their own separate HSA.
Factors Affecting Your Contribution Limit
Several factors can modify the standard annual contribution limit. All money deposited into your HSA during the year, including contributions from an employer, counts toward the annual limit. Employer contributions directly reduce the maximum amount you can personally contribute. For example, if the family coverage limit is $8,750 and an employer contributes $1,000, the employee’s maximum contribution for that year is reduced to $7,750.
If you are covered by an HDHP for less than the full 12 months, your contribution limit is prorated based on the number of months you were eligible. Eligibility is determined on the first day of each month. For instance, if an individual with self-only coverage becomes ineligible for an HSA on October 1st, they would have been eligible for nine months, making their maximum contribution 9/12ths of the annual limit.
The “last-month rule” allows an individual who is HSA-eligible on December 1st of a given year to contribute the full, non-prorated annual maximum. To use this rule, the individual must remain covered by an HSA-eligible health plan for a “testing period,” which runs through the end of the following calendar year. Failing to maintain coverage during this period has tax consequences.
If an individual uses the last-month rule but then loses their HSA eligibility during the subsequent testing period, the amount they contributed beyond the prorated limit becomes taxable. This excess amount is included in their gross income and is also subject to an additional penalty.
Handling Excess Contributions
An excess contribution occurs when the total amount deposited into an HSA for a given year surpasses an individual’s legally permissible limit. This can happen by miscalculating prorated limits or overlooking employer contributions. The consequence is a 6% excise tax imposed by the IRS on the over-contributed amount.
This 6% excise tax is not a one-time penalty, as it applies for each tax year that the excess funds remain in the account. For example, if an excess contribution from one year is not corrected, the 6% tax will be assessed again on the next year’s tax return.
The excise tax is calculated and reported using IRS Form 5329. This form must be filed with your annual income tax return for each year the excess remains uncorrected.
Correcting an Over-Contribution
To avoid the recurring 6% excise tax, you must correct an excess contribution. The process begins by contacting the financial institution that administers the HSA and instructing them to process a “withdrawal of excess contribution” for the exact amount over-contributed.
When withdrawing the excess contribution, you must also withdraw any net income or earnings the excess funds generated. The HSA administrator can help calculate the amount of these attributable earnings.
The deadline for this corrective action is the tax filing deadline for the year the excess contribution was made, including extensions. For an excess contribution made in 2024, the correction must be made by the tax filing deadline in 2025. If this deadline is met, the 6% excise tax can be avoided.
While the withdrawn excess contribution itself is not taxed, the earnings attributable to it are. These withdrawn earnings must be reported as “Other income” on your tax return for the year the withdrawal is made.