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IRS Guidance - Calculating the Maximum HSA Contribution During the First Year of Medicare Enrollment

The Internal Revenue Service (IRS) issued Information Letters 2016-0003 and 2016-0014, providing clarity on how to compute the maximum annual permissible health savings account (HSA) contribution in the first year an individual is enrolled in Medicare (not necessarily the year during which the individual reaches age 65).

Background

For 2016, the maximum annual contribution to an HSA is:

  • $3,350 for self-only coverage; and

  • $6,750 for family coverage.

In addition, the maximum annual catch-up contribution for individuals age 55 or over is $1,000.

Computing the Maximum Contribution During the First Year of Medicare

The maximum annual contribution in the year an individual enrolls in Medicare is prorated based on the following factors:

  • Number of months the individual has self-only coverage;

  • Number of months the individual has family coverage; and

  • The month the individual enrolls in Medicare.

    • Note: individuals cannot contribute to an HSA in the first month enrolled in Medicare.

The IRS provided the following scenario to demonstrate how to calculate the maximum annual contribution:

  • Wife and Husband retain family coverage for 4 months (January through April).

  • Wife turns 65 and enrolls in Medicare in May.

  • Husband switches to self-only coverage for 5 months (May through September).

  • Husband turns 65 and enrolls in Medicare in October.

        Wife and Husband Max Contribution (couple’s discretion to divide) 

                  =   $2,250       ($6,750 x 4/12)    (family max * 4 months)

        Wife’s Individual Max HSA Contribution

                   =   $330         ($1000 x 4/12)     (catch-up max * 4 months before Medicare)

        Husband’s individual Max HSA Contribution

                  =   $1,396       ($3,350 x 5/12)    (self-only max * 5 months)

                     +  $750        ($1000 x 9/12)     (catch-up max * 9 months before Medicare)

The examples provided by the IRS are clear and a good reminder for employers calculating HSA contributions for retiring employees.

© Copyright 2022 Armstrong Teasdale LLP. All rights reserved National Law Review, Volume VI, Number 118
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About this Author

Aarthi Krishnamurthy, Armstrong Teasdale, Corporate, Health Care
Associate

Aarthi Krishnamurthy is an associate in Armstrong Teasdale’s Corporate Services practice group where she focuses almost exclusively on health care law. In her practice, she counsels institutional and non-institutional clients in response to legal and business challenges and opportunities in the rapidly-evolving U.S. health care system. 

Working primarily with physicians, independent contractors, principal investigators, physician groups and health and medical insurance providers, Aarthi implements feasible compliance programs to meet government regulatory standards that are in-line...

314.342.4126
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