How to Calculate Your Maximum HSA Contribution for the Year

Even with a good health insurance policy, you may still need to pay for some expenses out  of pocket. You can use a health savings account (HSA) to pay for qualified medical expenses that are not covered by your insurance company. The benefits of an HSA include tax-free contributions, investment earnings, and withdrawals for qualified expenses. 

However, there are limits on how much you can contribute to an HSA every year. Your annual limit will depend on the type of HSA you have, your age, how long you were HSA-eligible during the year, among other factors. If you exceed your maximum contribution limit, you could be subject to taxes and penalties. 

What are the HSA contribution limits for 2023?

Every year, the IRS adjusts the maximum annual contribution limits for HSAs. Your contribution limit will depend on the type of HSA you have — individual or family — as well as your age and the number of months you were HSA-eligible during the year.

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The following table shows the HSA contributions limits for 2022 and 2023 for those under 55:

Source: IRS.gov

If you are 55 or older, you can add an additional $1,000 to your contribution. This is known as a “catchup contribution.” If you turn 55 anytime during the year, you will be eligible to contribute additional money to your HSA. 

If you are eligible for an HSA the entire year, you can contribute the maximum amount to the account. According to the IRS rules, to be HSA-eligible you must:

• Have a high-deductible health plan (HDHP). This is an insurance plan that has relatively low monthly premiums and a high deductible. This is compared to health maintenance organization (HMO) or preferred provider organization (PPO) plans. 

• Not be enrolled in Medicare.

• Not be eligible to be claimed as a dependent on someone else’s tax return.

HSAs are held in only one person’s name and cannot serve as joint accounts. Spouses who have separate individual HDHPs can have individual HSAs, and each of them can contribute up to their individual limit. If each spouse has family HDHP coverage, they can have separate HSAs, but their combined contributions to those accounts cannot exceed the family contribution limit.  

How do I calculate my maximum HSA contribution for the year?

Typically, you can contribute to an HSA only during months you were considered eligible. You can start contributing on the first of the month following the determination of HSA eligibility. For example, if you are eligible for an HSA on January 15, then you can make contributions starting on February 1. 

If you are not eligible to contribute to an HSA for the entire year, your maximum contribution amount will be prorated. There are two steps to calculate your maximum in this case: 

1. Find the IRS-allowed contribution limit for the year and divide that number by 12. 

2. Multiply the maximum HSA contribution per month by the number of months you were HSA-eligible. 

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The following table shows the prorated HSA contributions for 2023. 

Source: GoodRx calculations based on IRS annual contribution limits

Let’s say you are age 50 and have a family HSA.

• You can contribute an average of $646 per month, which represents the maximum HSA contribution limit of $7,750 for 2023, divided by 12 months. 

• If you were eligible for an HSA for seven months in 2023, then you can contribute a maximum of $4,521.

This does not mean you have to make your contributions on a monthly basis.You have until the tax filing deadline, which is usually April 15, to make contributions to your HSA. 

The last-month rule is one exception to the proration rule. You can make the maximum yearly contribution to an HSA if you were eligible to contribute on the first day of the last month of the tax year (generally, December 1), even if there were other times during the year when you were not eligible.

Here’s how it works: 

• Suppose you are 56 years old. 

• From January through November 2023, you are not eligible for an HSA. 

• Your health plan changes and you become HSA-eligible on December 1. 

• According to the last-month rule, you can make a maximum contribution ($4,850 for individuals or $8,750 for family coverage) for 2023.

However, the last-month rule requires that during 2024 you remain eligible for an HSA for the full year. If not, the contribution you made for 2023 under the last-month rule will be subject to taxes and a 20% penalty.

What factors affect how much you can contribute to your HSA?

There are different contribution limits for individual and family HSAs. Other factors that will impact your maximum HSA contribution for the year include:

• Age: You qualify for a $1,000 catch-up contribution if you are 55 or older. You lose the right to contribute to an HSA after you enroll in Medicare.

• Employment status: If you change jobs, you may no longer have access to a qualified HDHP. 

• Marital status: A divorce could cause you to lose your family HSA. 

Can you contribute to an HSA if you are unemployed?

You must be covered by an HDHP to contribute to an HSA. If you lose your job, you can qualify if you enroll in COBRA (Consolidated Omnibus Budget Reconciliation Act). This extends your previous workplace coverage for at least 18 months. However, you will have to pay for the entire premium without financial assistance from your former employer. 

You can also enroll in HDHP coverage through an Affordable Care Act (ACA) marketplace plan. You may be eligible for tax credits with these plans, which can lower your out-of-pocket costs for monthly premiums. 

Generally, health insurance premiums are not qualified medical expenses for HSAs. But COBRA and federal or state unemployment insurance are the exceptions. If you have at least six months of funds in an HSA, you’ll be able to use your account to cover some of the insurance payments while you are unemployed.  

How do I avoid HSA penalties?

You must follow HSA rules to avoid incurring penalties and taxes on distributions. Below are three situations that can lead to penalties.

• Spending HSA funds on non-qualified medical expenses. You could be subject to a 20% penalty if you use your HSA to pay for items or services that are not considered IRS-approved medical expenses. For example, you are not allowed to use your HSA to pay for elective cosmetic surgery procedures, such as a Brazilian butt lift (BBL) or a facelift.

• Contributing over the annual limit. If you contribute too much money to an HSA, you may have to pay a 6% excise tax. That’s why it’s important to calculate your maximum contribution for the year. However, you can avoid the excise tax by withdrawing the excess amount and earnings on the contribution before the tax filing deadline. 

• Taking a distribution from a rollover. If you lose your job or want to switch HSA custodians, the IRS allows you to do one rollover every year. Your HSA provider will issue you a check and you will have up to 60 days to transfer the funds into a new HSA. If you do not meet this deadline, you will be subject to a 20% penalty.

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Written by:

Tom Taulli, EA

Tom Taulli, EA, operates his own tax preparation and planning firm, Pathway Tax, which he founded in 2000. He is a licensed enrolled agent and can represent taxpayers before the IRS. He can also prepare and advise on tax matters for all 50 states.

Edited by:

Charlene Rhinehart, CPA

Charlene Rhinehart, CPA, is a personal finance editor at GoodRx. She has been a certified public accountant for over a decade.

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