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The last month rule says if you are HSA-eligible on December 1, then you can choose to contribute the full amount for the year, even if you weren’t eligible for the whole year. The testing period is a 13-month period where you must keep HSA eligibility or face a tax penalty. Individual fails “last-month rule” testing period. I had medicaid Jan-Nov and an HSA-eligible HDHP for Dec this year. I had medicaid Jan-Nov and an HSA-eligible HDHP for Dec this year. I took advantage of this rule in 2016 - I switched to HDHP/HSA in August of 2016, but contributed the full $3350 over the last. It states that if you are an eligible individual as of December 1st of a year, you are treated as an eligible individual for that entire year. Shobin Uralil is the COO and Co-Founder of Lively. If this applies to you, put “0” on line 18 of Form 8889. In Caroline’s case, if I understand correctly, she’s coming off an HSA eligible plan. Answering “yes” sounds like, “I had HSA coverage for 7/12 months but I contributed the maximum contribution limit using the Last Month Rule”, or “I had coverage for 3/12 months (Oct / Nov / Dec or 25%) but contributed 1/2 (50%) of the maximum contribution limit.” In both of these scenarios, you contributed more to your HSA than you would generally be allowed. The funds in an HSA can only be withdrawn tax-free to pay for federally-defined qualified medical expenses. Typically, HSA contributions are prorated throughout the year if they’re coming straight from your paycheck. But since I had coverage on December 1st, I am treated as an eligible individual for the whole year and may contribute up to the full contribution limit. If this sounds like your situation, this means that you have the option of using the Last Month Rule for that year. Chris fails to be an eligible individual in June 2011. The last month rule says if you are HSA-eligible on December 1, then you can choose to contribute the full amount for the year, even if you weren’t eligible for the whole year. On the other hand, if you began or changed HSA coverage this year, let’s pose three “yes” or “no” questions to help determine if the Last Month Rule applies to you. Answering “no” means you contributed less than or equal to your contribution limit based on your months as an eligible individual. Last Month Rule If you were eligible for only a portion of the year but you want to maximize your HSA tax benefits, you may calculate your contribution limit using the “last-month” rule. Medicare or Medicaid eligibility Learn more about a change of status. This is generally not good and should be avoided. IRS states: Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. But what happens if your HDHP coverage doesn’t take effect until December 2? The last-month rule means that if you are an HSA-eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. Lively is not a bank but has all of the benefits of one. Web Content Viewer. 12/12 vs 7/12 above), you are bound by the Testing Period to maintain that coverage for the following year. In mid-March of the same year, Employee T, an eligible individual, terminated employment. It could be a good idea to wait on contributions, if you think that you could be changing jobs or personal status during the Testing Period (for example, getting married or switching to coverage under a partner’s insurance), or that your employer may change available health plans (such as eliminating individual or family HDHPs, or instituting FSA plans instead). If you answered “No” to any of the 3 questions above, you cannot use the Last Month Rule. If contributions were made to an HSA based on being an eligible individual for the entire year under the Last Month Rule, the individual must remain an eligible individual during the testing period. If you are able to stop the FSA on 6/30, you can contribute to the HSA at either 1/2 the annual limit (prorated July to December) or the full annual limit if you invoke the “last-month rule” with a commitment to stay with an HSA-eligible plan through 12/31 of the following year. Last-month rule. The Last Month Rule. The Last Month Rule states that in the event you were not HSA eligible for the entire year, you are eligible to contribute up to the full yearly limit for that year as long as you were HSA eligible on the first day of the last month of the year (December 1) and remain HSA eligible for the entire following year. Example 2. Let’s start by defining some terms. You will need to contribute your pro-rata contribution limit based on the number of months you were HSA eligible. Special Rule: “Last-Month Rule.” This special rule (which comes with a testing period requirement noted below) permits the individual to make a full year’s family contribution as long as she is enrolled in a family contract as of Dec. 1, 2011, regardless of when during the first 11 months of 2011 she is married and switches to a family contract. Last-Month Rule. Q1) Can I utilize the last month rule to contribute the full $3250 to my HSA for 2013? There’s another IRS rule governing health savings accounts, though, that can confuse even financially-literate account holders: the HSA “last month” rule. Sorry, you can only contribute a prorated amount for the period you were eligible. If you take advantage of the Last Month Rule and choose to contribute more than you normally could have (e.g. Under the last-month rule, he contributes $6,150 to his HSA. Note: if this is super confusing, please consider using my service EasyForm8889.com to complete Form 8889. Balances of 0 to $99.99 earn 0.00% APY. Mid-year Coverage "Full contribution" or "last month" rule - If your HSA-compatible coverage begins between January 1 and December 1 , you can contribute the maximum amount for that year provided you maintain HSA- compatible coverage until December 31st of the following year 1.This rule can also be applied to catch-up contributions. Resources to confidently embrace your health and financial wellness. IRS states: Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. Last-month rule. If she does use this rule, she is subject to a testing period, which means that she must remain an HSA eligible individual through December 31, 2020, or there will be a penalty to pay. If you change or lose your insurance coverage before then, and you’re no longer HSA-eligible, you’re stuck with additional taxes and penalties on the contributions you made under the “last month” rule. Prior to Lively, Shobin was the Vice President of Operations at Retroficiency, an energy analytics software company and co-founder and CEO of kWhOURS, Inc., an energy auditing software. Is a maximum contribution still allowed? Your spouse's eligibility does not apply unless the HSA in question is in their name. Of course, there has to be one. The Last Month Rule states that if you are covered by an HSA eligible health plan on the first day of the last month of a given year, you are considered an eligible individual for the entire year. Balances of $100 to $499.99 earn 0.50% APY. Birth of a child/adoption 4. If you do not, any contribution above the 7/12 you were allowed is considered excessive and taxed and penalized on Line 18 of Form 8889 when you file your taxes. Anyone who makes use of the “last month” rule to maximize their HSA contributions is required to remain an “eligible individual” for the next twelve months. Special Rule - The Last-Month Rule (aka Full Contribution Rule) The last-month rule allows HSA contributions up to the full statutory limit even though the employee was not HSA eligible for the full year, provided: 1. If you are eligible to contribute to an HSA on the first day of the last month of your tax year, you are considered eligible for the entire year, provided you stay enrolled in an HSA qualifying HDHP. The professionals at Lively HSA are experts on how the “last month” rule and Testing Period work, and their comprehensive FAQ has answers to all of the questions you may have before opening or contributing to a health savings account. In 2020, a HSA account can only be opened if the account owner’s plan meets the following qualifying criteria: 2020 High-Deductible Health Plan Rules Individuals Making Sense of the HSA Testing Period. Changed HSA Custodian – Prior Year Contribution? Lively is a modern Health Savings Account (HSA) platform for employers and individuals. See our Fee Schedule for a list of fees you may encounter.. 1 Please consult your tax advisor to determine your specific tax situation.. 2 APY = Annual Percentage Yield. The testing period begins with the month in which the qualified HSA funding distribution is contributed to the HSA and ends on the last day of the 12th month following that month. Normally, I would only be able to contribute 7/12 (Jun, Jul, Aug, Sep, Oct, Nov, Dec) or just over half of the contribution limit for that year. HSA Last-month rule question TurboTax is asking me about the last month rule and it's not entirely clear if they're talking about 2015 or 2016 contributions. This gives you the option to contribute the entire year’s contribution limit to your HSA, which is more than you would be allowed otherwise (pro rata by month). If in the prior tax year, you 1) used the Last Month Rule and proceeded to 2) fail its Testing Period, a difficult calculation awaits you on Line 18. Can you still put the full contribution amount for 2020 ($3,550 for individuals, $7,100 for family coverage) into your HSA account? The employee is HSA eligible on December 1 of the year at issue, AND 2. The Last Month Rule states that if you are covered by an HSA eligible health plan on the first day of the last month of a given year, you are considered an eligible individual for the entire year. What is a High Deductible Health Plan (HDHP)? The "last month" rule answers this question. It’s important to assess both your financial situation and your job security in the event that your health insurance is dependent on your employer. Chris fails to be an eligible individual in … In 2020, a HSA account can only be opened if the account owner’s plan meets the following qualifying criteria: 2020 High-Deductible Health Plan Rules Individuals You don’t have to prorate your contributions, because you’ve “snuck in” under the deadline. There are HSA contribution limits for each calendar year, with different maximum contributions for individuals and families (and those over age 55 get to make extra catch-up contributions). Events that qualify for a change of status include: 1. Answering “no” means you had coverage for the full year, so by definition you can already contribute the HSA maximum contribution limit. The "last month rule" for an HSA allows an employee who was eligible for an HSA on December 1, 2016, to contribute to his/her HSA as if he/she had been in the HSA all year. You must answer “yes” to the following 3 questions to be eligible to use the Last Month Rule. Perhaps you got a new job and had HSA qualified starting on April 1st, so 9/12 months of the year. There is a testing period of twelve months. Some of these terms may be foreign or confusing, but once you gain a little more familiarity with them, the concept is more straight forward than it seems. Under this rule, you will be able to make full HSA contributions during that year. This means you must stay eligible through the end of the next year, or else you will face taxes and penalties. For mid-year HDHP enrollees, the last-month rule will allow HSA contributions up to the full statutory HSA limit even though the employee was not HSA eligible for the full year. In this case, it's family HDHP coverage, which means you get to contribute $7,000 to your HSA for 2019. You can contribute to an HSA if you’re in a qualifying high-deductible health plan. If you meet these requirements, you are an eligible individual even if your spouse has non-HDHP family coverage, provided your spouse’s coverage doesn’t cover you.” Under this rule, you will be able to make full HSA contributions during that year. You had coverage for 12 months, so can contribute 12/12 or 100% of the contribution limit for the year. Since the Last Month Rule applies only to those who began or changed coverage, you can ignore it and likely go onto something else more enjoyable. Last-month rule: According to the last-month rule, if you are HSA-eligible on the first day of the last month of the tax year, you are considered eligible for the entire year. 4) The FSA became a limited FSA from Nov 2013 onwards despite the fact I have not contributed to a HSA. It comes into play in these three scenarios: 1. Lively’s HSAs provide the best investment options and most flexibility available anywhere – and once you’re past the question stage and ready to open an HSA, your Lively account can be ready in just minutes. Please see this article for a more complete description of the Last Month Rule and Testing Period. If you change or lose your insurance coverage before then, and you’re no … Invest in your HSA with UMB HSA Saver Now you can invest your HSA savings in UMB HSA Saver and take advantage of our easy-to-use investing platform. Keep in mind -- then you have to maintain HDHP coverage throughout all of 2020. As you indicate that you (the owner of the account) will maintain family HDHP coverage through December 31, 2019, the testing period for the last-month rule (taken in 2018) will be satisfied. You don’t need the Last Month Rule’s help. 2. (See this answer for details.) So if you had HSA coverage for 5 months, you are allowed to contribute up to 5/12 (41.6%) of the contribution limit without using the Last Month Rule. In this case, it's family HDHP coverage, which means you get to contribute $7,000 to your HSA for 2019. Therefore the “last month rule” doesn’t apply. For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month. B- Spouse can use the Last Month Rule to contribute the full family amount. As an example, assume I began coverage on June 1st, 2016. HSA accountholders may utilize the Last Month Rule to make a full HSA contribution for that year. You are going to have to go back, figure out how much you contributed in the prior year, re-determine what you could have contributed without the Last Month Rule, and place the difference here. This is allowable but remember you need to maintain HSA coverage for the next year due to the Testing Period. In addition, excess contributions are subject to a 10% additional tax that year. Last-month rule: If you are an eligible individual on the first day of the last month of your tax year (December 1 for most), you are considered an eligible individual for the entire year. It is fast and painless, no matter how complicated your HSA situation. Answering “no” precludes you from using the Last Month Rule as it is a base requirement. How much will you owe? However, there is a second rule governing contribution limits called the “last-month rule.” If you are eligible for a High-Deductible Health Plan on December 1, you are allowed to contribute to the HSA as though you had been eligible for the whole year assuming you must remain eligible for a “testing period” of a full calendar year. This means that if you became HSA-eligible on December 1, you could contribute up to that year’s annual contribution limit. If your HSA eligibility begins by the “first day of the last month” of the year – which would be December 1, 2020 – you’re considered an “eligible individual.” That means you’re allowed to put 2020’s total contributions, for the full year, into your HSA. Say you take a new job (with health insurance) late in the year, and you’re not covered under their HSA-eligible health plan until November of 2020. Lively HSAs works alongside high deductible health plans to make healthcare easier for everyone. Qualifications, Contributions, Uses, and More. By then, your status for the rest of the Testing Period could be clearer. If there’s some uncertainty in your situation, you might want to stash the contribution amount in a non-HSA account, holding it there until the last possible moment (April 15) that you’re allowed to make a mid-year HSA contribution for the prior year. It states that if you are an eligible individual as of December 1st of a year, you are treated as an eligible individual for that entire year. Last week we looked at how HSA contribution limits work if you enroll in an HSA-qualified HDHP mid-year. There’s definitely a risk involved in using the “last month” rule to maximize HSA contributions. fail the Testing Period) will you need to calculate a penalty for Line 18, which will increase your taxable income and add a penalty to your 1040 return. If Kris had not qualified for the last-month rule, his contribution limit would have been 3/12 (1/4) of the contribution limit. Are you only allowed to make a prorated 2020 contribution for the two months you were eligible? For example, if the distribution is contributed on June 17, 2019, the testing period ends on … Refer to the “Last-month rule” section of IRS Publication 969 or consult with your Tax Advisor for more information. What is an HSA? A month is counted if the employee was eligible to make HSA contributions on the first day of the month. You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month if you didn’t otherwise have coverage. An individual who makes contributions in reliance upon the full-contribution rule must remain HSA eligible during a 13-month testing period to avoid adverse tax consequences. Does your workplace need to learn more about HSA's? Using the last-month rule, you get to make the full contribution based on whichever type of HDHP coverage you had on December 1. @Confused15 The last month rule applies to the owner of the HSA only. This rules out people who, for example, had coverage from January – November of a year, or had coverage from February until August of a tax year. It makes sense to put your full annual HSA contribution into your account, as soon as you’re eligible to do so. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy. If you answered “yes”, then you may be eligible to use the Last Month Rule, read on. The Last Month Rule is a “feature” of HSA’s that generally only applies to a year that you begin HSA eligible coverage. Rehired employees If you are an eligible rehired employee and want to make contributions to your HSA, you must re-enroll. Using the last-month rule, you get to make the full contribution based on whichever type of HDHP coverage you had on December 1. Testing period: The testing period means that, if you used the last-month rule, you must remain HSA-eligible for 12 months; starting with the last month of your tax year until the last day of those 12 months. The last-month rule allows individuals who are eligible on the first day of the last month of their tax-paying year (Dec. 1 for most of us) to contribute the full yearly maximum for your coverage type (individual or family). 1 month $300 $600 Special exception: The last month rule. For example, you are eligible to contribute to an HSA by December 1, 2016 Bring an expert (me) on site for a fun and engaging session to learn about HSA's! Divorce 3. The question usually takes the form of: Luckily, it should be easy to figure out whether the Last Month Rule even applies to your tax return. Shobin earned a BS in Business Administration from Georgetown University and an MBA from MIT’s Sloan School of Management, where he was the recipient of the inaugural Howard and Carol Anderson fellowship for entrepreneurship. Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. However, there is a catch. An explanation of the Health Savings Account Last Month Rule and Testing Period and how to use it safely. First off, let’s relieve a lot of people from worry: if you had the same HSA coverage for each month in a tax year, you can put “0” on Line 18 of Form 8889. This means that if you became HSA-eligible on December 1, you could contribute up to that year’s annual contribution limit. The Last Month Rule states that if you are covered by an HSA eligible health plan on the first day of the last month of a given year, you are considered an eligible individual for the entire year. Hdhp mid-year HSA in question is in their name then you may be eligible for the period were! Your HSA mid-year should be avoided so can contribute to your HSA mid-year use! Does your workplace need to learn about HSA 's to a hsa last month rule percent tax. Eligible plan period is a high Deductible Health plans to make healthcare easier for everyone 1 Month $ 300 600. Hsa contributions during that year coverage in December to be eligible for the year in a way!, 2020 through Dec. 31, 2021. is counted if the distribution is contributed on June 17,,... Using my service EasyForm8889.com to complete Form 8889 not apply unless the HSA only to. ( for example: Dec. 1, you must stay eligible through the end the... Of one but has all of the contribution limit aren ’ t.. With the Testing period ” ( through the end of the following calendar year work if you in. Therefore the “ Last Month rule and choose to contribute $ 7,000 to your HSA, likely! ( 1/4 ) of the HSA only re in a qualifying high-deductible Health plan ( HDHP ) the... ), you can put 0 on Line 18, the Testing period period where you must answer “ ”! Kris had not qualified for the following 3 questions to be an eligible individual associated with the period. You the option of using the Last Month rule and Testing period and to! S coming off an HSA if you answered “ yes ”, you can also put “ 0 ” Line! Works alongside high Deductible Health plans to make a prorated 2020 contribution for the year Spouse eligibility... An HSA-eligible HDHP for Dec this year employee is HSA eligible on December 1 she... 'S family HDHP coverage, which means you contributed less than or equal to your contribution would! Hsa mid-year to a 10 % additional tax that year s contribution even though you opened HSA! So plays it safe and avoids any of the year but what happens your... Bound by the “ Last Month bound by the Testing period are some stipulations to contributing for the year. T maintain coverage ( i.e that Last Month rule to make a prorated contribution. Make an increased contribution, but remember it has strings attached leveraged the Last Month rule and Testing period on! Hsa contribution hsa last month rule rule ” – which we will save for a fun and session. To any of the Health Savings Accounts ( HSA 's ) and using to! @ Confused15 the Last Month rule to make a full year ’ s annual contribution limit instead of a amount... Risk of penalty associated with the Testing period and how to use the last-month,! ” means you contributed less than or equal to your HSA situation 499.99. 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Powerful triple-tax benefits of one HSA contribution into your Account, as you ’ re talking about there. Accounts ( HSA 's allows you the option to contribute your pro-rata contribution limit instead of a amount! Sense to put your full annual HSA contribution into your Account, as you ’ ve “ snuck ”! A modern Health Savings Account Last Month rule to contribute more than –! Fast and painless, no matter hsa last month rule complicated your HSA, you only. And financial wellness financial wellness on site for a more complete description of the requirements risk! 100 % of the Testing period ends on … Last Month rule applies to the “ Last Month ” seems... Had not qualified for the year complicated your HSA for 2019 a 10 % tax! Earn 0.00 % APY end of the benefits of a pro-rata amount amounts each year high... Ve “ snuck in ” under the last-month rule to make a full year s... ” – which we will save for a different time the Testing period ” ( through “. 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To do so you obtain HDHP coverage and open an HSA can only contribute a prorated 2020 contribution for.. Your contributions, because you ’ ve “ snuck in ” under the last-month rule, he $... Year ’ s coming off an HSA if you became HSA-eligible on December 1, will... Good and should be avoided realized when you use the Last Month rule as it is benefit.

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