Jump to content

Monthly Contributions - HSA


Guest justbetmd

Recommended Posts

Guest justbetmd

Section 223(2) of the Code refers to a monthly limitation for HSA contributions (1/12 of the annual limit) -- However, Notice 2004-2 Q&A 21 states that contributions to an HSA may be made in one or more payments (providing for a lump sum). If an employer has a biweekly payroll and for 2 months out of the year the employer will have 3 pay periods in a month (thus exceeding the 1/12th limit for those two months) has the individual violated the HSA rules or is he in compliance if his annual limit has not been exceeded.

Link to comment
Share on other sites

The latter--look to whether the individual's combined monthly limitation was exceeded for the year. You won't know for sure until the end of the year if the individual was eligible for the full 12 months. If there's an excess contribution, it has to be kicked out with any attributable earnings before the individual's tax return (with extensions) is due. See Code § 223(f)(3).

Link to comment
Share on other sites

Seems to me that you can avoid the excess problem if you divide your yearly contribution by 26. For example, if your company is contributing $1200 per year, have each paycheck deduction calculated at the $46 rate. That way you stay within the guidelines.

Link to comment
Share on other sites

Guest justbetmd
Seems to me that you can avoid the excess problem if you divide your yearly contribution by 26. For example, if your company is contributing $1200 per year, have each paycheck deduction calculated at the $46 rate. That way you stay within the guidelines.

Yes you can avoid the annual excess problem - but if there is a monthly limit and you have an extra payroll in a month -- don't you exceed the monthly limit?

Link to comment
Share on other sites

Can you avoid the issue by dividing the annual amount by 24 and then applying it only to the first 2 pay periods in any given month? This also helps avoid the problems that occur in (the infrequent) years when you have 27 pay periods.

Link to comment
Share on other sites

HSA contributions are tested at year end based on the total number of months with HDHP coverage on the first of the month and the deductible for that month. If an employee overcontributes to his HSA because he does not have HDHP coverage for enough months, the excess (and applicable earnings) can be withdrawn and included in ordinary income without incurring the excess contribution excise tax.

The regulations clearly permit prefunding so I would not worry about this (but you may want to send out a communication about the tax implications of overfunding).

Link to comment
Share on other sites

  • 2 weeks later...
Guest greatlakeshsa

There is no monthly contribution limit for a HSA, as defined under section 223. The monthly contribution info, is merely a guide to help people budget. If you deductible is $2000, (single guy) You can deposit $2000 on January 1, 2006 - or you can deposit $2000 on APril 14th, 2007. Either way there are no penalties!!!!!

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...