A growing trend with working married couples is that they are now purchasing their own health insurance coverage plans, instead of getting on their spouses’ plan. In some cases, doing this is a good idea, and makes sense economically. In others, it is a personal preference and could depend on the contributions from the employer in order to mitigate benefit costs. Regardless of the reasons, if two married people decide to have their own separate high-deductible health plans (HDHP), this means there is a higher risk of one or both of their health savings accounts (HSAs) being overfunded.
Other similar cases of overfunding is when a married couple accidentally puts too much funding into their Dependent Care FSA. This tends to happen when their contributions are maxed out from their employers.
HSA Contribution Limits for 2019
In 2018, the IRS adjusted HSA contribution limits several times. This year, that has changed and the contribution limits have been simplified and are easier to understand. The contribution limits look like this:
- $3,500 single person contribution limit
- $7,000 contribution limit for families
- $1,000 limit on “catch-ups” for people over the age of 54
In comparison to the limits set back in 2018, the contribution limits for families has increased by $100 and by $50 for individual persons. The limit on catch-ups stays the same. These limits include employee contributions as well as contributions from employers.
If there is only one single person contribution to a specific HSA, contribution limits are simple and easy to apply. Any bank representative will be able to give detailed explanations about these limits and help employees make contributions that will not go over the limits. However, it gets a bit more complicated when it comes to contribution limits for spouses.
Limits for Two Spouses
There are several possibilities and things to consider when it comes to the contribution limits for two spouses. It is possible that one spouse will not have HDHP coverage, and the other spouse will have such coverage. In such scenarios, the spouse who does not have coverage won’t factor into applicable HSA contribution limits because they aren’t qualified for that kind of account. In this case, the contribution limits will only be the single person limit, the family limit if the spouses have children, or either of the two – plus the limit placed on catch-ups.
Additionally, the two spouses might both have self-only limits on HDHP and their own HSAs. If this is the case, both spouses will be subject to the limit placed on self-only coverage. For 2019, the two spouses are still eligible to contribute up to $7,000 ($3,500+$3,500). However, these funds must be divided up between each of the two accounts. In this case of two different HSAs, the family coverage limit is not applicable.
Another scenario is if both of the two spouses have HDHPs, but one of the plans might also have coverage for families – that is the other spouse and their children, if applicable. In this case, the two spouses are subject to the limit placed on families, which is $7,000. The self-only HSA that the other spouse has will not have an increase on their contribution limit. This scenario only lets them add up to $3,500 into their account, if they wish to do so. In addition to this, the full limit of $7,000 – or any figure up to that – could also be added to the account that will cover children and one spouse.
Finally, there is also a possibility that both spouses will be covered in a family HDHP, but they can also keep their own individual HSA. If this is the case, the $7,000 family contribution limit is still applicable. However, that figure can be divided between the two individual HSAs in any way they choose. For instance, up to the full $7,000 can be put into the HSA of one spouse, it can be divided half-and-half, or can be divided any way they choose.
Clear Communication about Two Spouse Contributions
As soon as a contribution limit for two spouses has been set, the contribution each spouse is making must be communicated clearly. This communication is crucial in the last two aforementioned cases, when each spouse is making their own contribution to separate HSAs. Those HSAs might be held at different banks or financial institutions. There is no way an account adviser will know what the other spouse does at another bank, so it’s the responsibility of the spouses to understand how limits work and communicate the contributions they make.
At many companies, the human resource department is very useful when it comes to explaining these different HSA scenarios. Most HR personnel don’t set up employees HSAs for them, but the HR reps can and do provide valuable information on HSAs, how to set one up, what to look for, and so on. The best HR reps are able to take into consideration the particular needs and home life of individual employees and their families. This is especially useful if the employee has a good working relationship with the HR rep, because the employee can build a level of trust with the rep. This is preferred rather than just speaking with a bank rep that they probably have never met, or even just speaking to over the phone.
How to Make Corrections if an HSA Is Overfunded
All is not lost if there is an HSA contribution mistake, as they can be corrected. There is a lot of information to take in when it comes to their HSAs, and explaining the actions an employee can take will help ease their minds a little bit and correct any kind of mistakes. There are two ways that an overfunded HSA can be corrected:
First, excess contributions could be removed along with net income attributed to excess contributions before the employee files their federal income tax return. This is the preferred way and the best way to correct such a mistake, because doing so means that only the normal income tax on excess funds will need to be paid on any excess funds that are removed from the HSA.
The other way is for the employee to keep excess contributions in their HSA, and be subject to paying a 6% excise tax on those funds. This can be a big issue, however, because the tax will be applied every year, and this defeats the purpose of the benefits and tax advantages that come with HSAs. Should an employee decide they do want to keep excess contributions in their HSAs, the excess contribution can be applied to their contribution for the next year. The employee will still need to pay the excise taxes on the amount that exceeds the contribution limit.