41.11 Limits on Deductible HSA Contributions

If you are an eligible individual (41.10), you can set up an HSA with an insurance company, bank, or other financial institution that has been approved by the IRS for this purpose. HSA contributions are reported to the IRS on Form 5498-SA.

The full contribution limit for 2012 (see below) is available regardless of when during the year you became eligible (41.10) for an HSA, so long as you were eligible on December 1, 2012; you are treated as if you were enrolled in the December 1 plan for the entire year. Contributions can be made up until the due date for filing your tax return (without extensions). Thus, HSA contributions for 2012 can be made through April 15, 2013.

For 2012, the maximum deductible contribution limit for an individual with self-only HDHP coverage is $3,100. For an individual with family coverage, the maximum deductible contribution for 2012 is $6,250. If a married couple has family HDHP coverage and both spouses are eligible for an HSA, they can decide between themselves how to allocate HSA contributions.

The contribution limit is increased for an account owner who is at least age 55 by the end of the year and who has not enrolled in Medicare. The “catch-up” contribution limit is $1,000. Starting with the month that an individual enrolls in Medicare Part A or B (generally at age 65), no further contributions, including catch-up contributions, can be made to his or her HSA. The allowable contribution is deductible “above the line” from gross income on Line 25 of Form 1040. Earnings accumulate tax free within an HSA, as with an IRA.

You may have more than one HSA, but the above maximum annual contribution limit applies to the aggregate contributions to all of the HSAs.

If you are an employee eligible to contribute and your employer contributes to an HSA on your behalf, employer contributions within the limit are excludable from your income (3.2). If your employer’s contribution is below the applicable limit, you may contribute to your HSA but the totals of all the contributions cannot exceed the applicable limit.

Contributions exceeding your applicable HSA limit are not deductible and are subject to a 6% excise tax. Contributions by an employer to an employee’s HSA in excess of the limit are includible in the employee’s income and subject to the excise tax. However, the excise tax can be avoided by a timely withdrawal of the excess contribution and any allocable income. The withdrawal deadline is generally the filing due date including extensions, or April 15, 2013, for an excess 2012 contribution. However, if you timely file without making the withdrawal, you may do so by October 15, 2013. On a timely withdrawal, the income is taxed in the year withdrawn but the excise tax does not apply and the distribution of the excess contribution is not taxed. See the instructions to Form 5329 for further details.

Use Form 8889 to report your HSA contributions and figure your deduction.

You must report your HSA contributions for 2012 and apply the deduction limits on Form 8889, which must be attached to Form 1040. The deduction from Form 8889 is entered on Line 25 of Form 1040, where it is deductible above the line from gross income.