Health Savings Account (HSA) Basics: Eligibility, Contributions, Limits

Start here if you want a fast, clear answer about whether you can open and fund a health savings account (HSA) this year. Then keep reading for details, examples, disqualifying factors, and practical steps to improve your chances.

Quick Qualification Check: Yes/No Criteria

You generally qualify to contribute to an HSA this month if every answer below is Yes:

• Are you covered by an HSA-eligible high deductible health plan (HDHP) on the first day of this month?
• Do you have no other health coverage that pays before your HDHP (except a few allowed types)?
• Are you not enrolled in Medicare?
• Can no one else claim you as a dependent on their tax return?

If any answer is No, you cannot contribute for that month. You can still keep an existing HSA open and spend from it on qualified medical expenses, but you cannot add new money until you meet all rules again.

Core Rules Explained in Plain Language

• You must have HDHP coverage in place on the first day of the month to contribute for that month. An HDHP is a plan with higher deductibles and capped out-of-pocket costs that meet IRS minimum deductible and maximum out-of-pocket levels for your coverage type.
• You can have self-only HDHP coverage (just you) or family HDHP coverage (you plus at least one other person). The other person does not have to be HSA-eligible.
• You cannot have other health coverage that pays before your HDHP. Secondary coverage that pays first for certain services commonly disqualifies you.
• You cannot be on Medicare and still contribute. Enrollment in Medicare stops new HSA contributions; you may keep and use the HSA, but cannot add to it.
• You cannot be someone else’s tax dependent.
• If your spouse has a non-HDHP family plan that covers you, you are not eligible to contribute—even if you personally are enrolled in an HDHP through work. If your spouse’s non-HDHP coverage does not cover you, you may still be eligible.

The Last-Month Rule and Testing Period

Two timing rules can help or hurt you:

• Last-month rule: If you are HSA-eligible on December 1, you’re treated as eligible for the entire year for purposes of the annual contribution limit. This lets many people who become eligible late in the year contribute the full-year amount.
• Testing period: If you use the last-month rule, you must remain HSA-eligible through December 31 of the next calendar year. If you don’t, you must include in income the amount you contributed because of the last-month rule and pay an extra 10% tax on that amount. This penalty does not apply if you stop being eligible because of death or disability.

2024 HDHP and HSA Numbers You Need to Know

• HDHP minimum deductible: $1,600 (self-only), $3,200 (family)
• HDHP maximum out-of-pocket (not counting premiums): $8,050 (self-only), $16,100 (family)
• HSA annual contribution limit: $4,150 (self-only), $8,300 (family)
• Catch-up contribution: $1,000 more if you’re 55 or older at any time during the year

Who can contribute?
– You, your employer, or both (for an employee HSA)
– Family members or anyone else can also add money for you
– The total from all sources cannot exceed your annual limit

Contribution deadline:
– You can fund your HSA for a tax year up to April 15 of the following year (standard filing due date, not including extensions).
– Example: If Johnny deposits on March 5, 20X2, he can count it for 20X1 or 20X2, as long as he clearly designates the year with the trustee.

What Counts as Qualified Medical Expenses

HSA funds are tax-free when used for qualified medical expenses. Key points:

• Over-the-counter medicines count even if not prescribed, and menstrual care products also count as qualified medical expenses.
• Only expenses incurred after you establish the HSA qualify. If you open the HSA on June 10, a bill from May 28 does not qualify for tax-free reimbursement.
• If you roll funds from an old HSA or Archer MSA into a new HSA, your established date carries over from the older account.
• If you relied on the last-month rule to max your contribution, only expenses incurred after you actually open the HSA are qualified for tax-free reimbursement.

Important insurance premium rules (premiums usually do NOT qualify, with exceptions):
– Exceptions that may count:
– Long-term care insurance (subject to age-based limits)
– COBRA or other healthcare continuation coverage
– Health coverage while receiving federal or state unemployment compensation
– Medicare and other health coverage if you are age 65 or older, but not Medigap
– Your HDHP premiums are not qualified medical expenses.

What Disqualifies You and Common Pitfalls

Disqualifying factors:
– Any non-HDHP coverage that pays before your HDHP, unless it’s a permitted exception
– Enrollment in Medicare
– Being a tax dependent of someone else
– Having your spouse’s non-HDHP family plan cover you
– Not having HDHP coverage on the first day of a month

Common pitfalls:
– Assuming any high-deductible plan is HSA-eligible—it must meet IRS rules.
– Paying old bills (from before your HSA start date) out of the HSA—those withdrawals are taxable and can be penalized.
– Forgetting the testing period after using the last-month rule.
– Double-counting employer and payroll contributions—total cannot exceed your cap.

How HSA Taxes Work: Distributions and Penalties

• Distributions are tax-free when used for qualified medical expenses.
• Distributions used for nonqualified expenses are taxable and usually subject to an extra 20% tax, unless one of these exceptions applies:
  • After you die
  • After you become disabled (unable to engage in substantial gainful activity due to an impairment expected to result in death or continue indefinitely)
  • After you turn 65
• If you stop being eligible and you used the last-month rule, you may have to include certain amounts in income and pay a 10% additional tax—unless the reason is death or disability.

Who Benefits in Real Life

• Workers with HDHPs who want long-term, tax-advantaged savings for health costs
• Self-employed people who buy an HSA-eligible HDHP
• Families who can use one HSA to cover the account holder, spouse, and dependents’ qualified medical expenses
• People who change jobs—HSAs are portable: the account stays with you if you leave your employer or the workforce

According to analysis by VisaVerge.com, portability often matters most for workers who switch employment or move between employer plans during the year, because an HSA can keep growing even when job-based insurance changes.

Step-by-Step: Open, Fund, Spend, and Report

1) Confirm your plan is an HDHP
– Ask your insurer or employer if your plan is HSA-eligible and check the 2024 minimum deductible and out-of-pocket maximum.
– Verify you don’t have other disqualifying coverage.

2) Open your HSA
– Choose a qualified trustee or custodian (bank, credit union, or other approved financial institution).
– Record the exact date you open the account. This date decides which expenses are reimbursable.

3) Fund your HSA
– Stay within the $4,150 self-only or $8,300 family limit for 2024 (plus $1,000 catch-up if age 55+).
– You, your employer, and others can contribute, but the total cannot exceed your annual limit.
– You have until April 15 after the tax year to make contributions for that year.

4) Spend or reimburse yourself
– Keep receipts and proof that expenses are qualified medical expenses.
– Pay providers directly or reimburse yourself later. Many people let funds grow and reimburse later when cash flow is tight.

5) Report correctly at tax time
– Use Form 8889, Health Savings Accounts (HSAs), with your Form 1040 or 1040-SR to report contributions, figure your deduction, and report distributions. If you (or your spouse, when filing jointly) took any HSA distribution during the year, you must file Form 8889 even if you otherwise wouldn’t file.
– Access the official IRS page for Form 8889 here: About Form 8889, Health Savings Accounts (HSAs).
– Access the official IRS page for Form 1040 here: About Form 1040, U.S. Individual Income Tax Return.

Contribution Timing Example You Can Apply

• If you contribute on March 5, you can apply the deposit to the prior tax year as long as it’s before the return due date (usually April 15), or to the current year. Be sure to tell your HSA trustee which year you want.

Special Cases and Scenarios

• Married, two plans:
  • If you have an HDHP and your spouse has a non-HDHP family plan that covers you, you’re not eligible.
  • If your spouse’s plan does not cover you, you can still contribute if you meet other rules.
• Self-employed or unemployed:
  • You can open and fund an HSA if you buy an HSA-eligible HDHP and meet all eligibility rules.
  • Family or friends can also contribute for you, but the total still cannot exceed your limit.
• Turning 65:
  • You can keep your HSA. Once you enroll in Medicare, you must stop contributing.
  • Nonqualified distributions are no longer subject to the 20% additional tax after age 65, though they remain taxable as income.
• Changing jobs midyear:
  • Your HSA is portable—it stays with you when you switch employers or leave work.
  • Eligibility to contribute for each month depends on whether you had HDHP coverage and met all rules on the first day of that month.
• Using the last-month rule:
  • If you become eligible on December 1, you can contribute up to the full-year limit.
  • You must remain eligible through December 31 of the next year, or you’ll include the “extra” amount in income and pay the 10% additional tax.

Not Eligible to Contribute? Practical Options

• Keep and spend existing HSA funds—you can use them for qualified medical expenses tax-free even if you lose eligibility.
• Ask HR about switching to an HDHP during open enrollment. If you choose an HDHP for next year, you may become eligible on January 1.
• Check if your spouse can qualify. If your spouse has an HDHP and meets rules, they may open an HSA and cover family expenses through that account.
• Consider other tax-favored arrangements at work (for example, a health FSA if offered). Note: FSA rules differ from HSAs; FSAs typically can’t be paired with an HSA unless they’re a limited-purpose design.
• Set reminders to open the HSA immediately once your HDHP starts—only expenses after the HSA start date qualify.

How to Improve Your Chances and Avoid Penalties

• Verify plan eligibility in writing. Ask your insurer or HR whether your plan is HSA-eligible and get a summary plan description showing deductible and out-of-pocket limits meet 2024 HDHP rules.
• Confirm you don’t have other disqualifying coverage. Watch secondary plans that pay first for certain services.
• Open the HSA as soon as you become eligible. This sets the start date for qualified medical expenses.
• Use the last-month rule cautiously. It can help, but you must complete the testing period to avoid the 10% additional tax.
• Track contributions from all sources. Include employer deposits and cafeteria plan payroll contributions. The combined amount cannot exceed your annual cap.
• Save receipts. Keep records showing what you paid, when, and for whom (you, your spouse, or your dependents).
• Mind the April 15 deadline. You have until the filing due date (not including extensions) to fund your prior-year HSA.

Spending Rules That Help Real Families

• Use HSA funds for your expenses, your spouse’s expenses, and your dependents’ expenses if they meet qualified medical expense rules.
• You can pay current bills or reimburse yourself later—some families wait to reimburse to let the HSA grow tax-free.
• Over-the-counter medicines and menstrual care products count. Save barcodes or itemized receipts showing exact items.

What Happens If You Use HSA Funds for Nonqualified Costs

• The withdrawal is taxable and usually subject to an extra 20% tax.
• The extra 20% does not apply after you die, become disabled, or turn 65.
• If you mistakenly used HSA funds for a nonqualified cost, you can repay the HSA in the same tax year with the trustee’s help to fix the mistake. Ask your HSA bank about their correction process.

Why HSAs Matter for Mobile Workers

For workers who move between jobs and health plans in the United States, the HSA’s portability can be a lifeline. Your account follows you when you change employers or step out of the workforce, so the money you saved remains available for qualified medical expenses even if coverage changes later. Just remember: eligibility to contribute depends on your HDHP status on the first day of each month.

Recordkeeping You Shouldn’t Skip

• Keep plan documents that prove your HDHP status
• Save contribution records and employer HSA statements
• File Form 8889 with your federal return if you or your spouse took any HSA distribution
• Keep a running list of qualified medical expenses with dates and amounts

Annual Review Checklist

• Did your plan remain an HDHP all year?
• Did you avoid other disqualifying coverage?
• Are your total contributions within your limit (including employer amounts)?
• Did you use the last-month rule? If yes, are you on track to complete the testing period?
• Do all HSA reimbursements tie to qualified medical expenses incurred after your HSA start date?

Official Forms and Where to Get Help

• Use Form 8889 to report HSA contributions, figure your HSA deduction, report distributions, and calculate any income or additional tax if you fail to remain eligible. Get it here: About Form 8889, Health Savings Accounts (HSAs).
• File Form 1040 (or 1040-SR) with Form 8889 if you had HSA distributions. Get it here: About Form 1040, U.S. Individual Income Tax Return.
• For official guidance on HSAs and HDHP rules, see the IRS’s HSA overview: Health Savings Accounts (HSAs) – IRS guidance.

Bottom-Line Answers to Common Eligibility Questions

• I’m covered by an HDHP and my spouse has a non-HDHP that does not cover me. Can I contribute? Yes, if you meet all other rules.
• My spouse’s non-HDHP plan covers me too. Can I contribute? No, because you have other disqualifying coverage.
• I enrolled in Medicare. Can I still contribute? No. You can keep and spend your HSA, but you can’t add to it.
• I’m claimed as a dependent by my parent. Can I contribute? No.
• I started HDHP coverage on the 10th of the month. Can I contribute for that month? No. You must be eligible on the first day of the month.
• I became eligible on December 1. Can I contribute the full-year amount? Yes, under the last-month rule, but you must remain eligible through the end of the next year or face income inclusion and a 10% additional tax on the extra amount.
• Can I reimburse myself for expenses from before I opened my HSA? No. Only expenses incurred after your HSA establishment date qualify.

Final Practical Tips

• Treat your HSA like a long-term health nest egg. The money rolls over, can be invested, and grows tax-free for qualified medical expenses.
• If you expect to retire soon, consider building your balance while eligible. After age 65, nonqualified withdrawals are taxable as income but not hit with the 20% penalty; qualified medical expenses remain tax-free.
• Don’t guess on plan eligibility—confirm it’s truly an HSA-eligible HDHP and keep proof.
• Use catch-up contributions if you’re 55 or older. That extra $1,000 can help buffer future costs.

If you follow these rules—HDHP coverage on the first day of the month, no other disqualifying coverage, no Medicare enrollment, and you’re not someone’s dependent—you can open and fund a health savings account, claim the tax break, and use your HSA tax-free for qualified medical expenses for yourself, your spouse, and your dependents. That mix of tax deduction for contributions, tax-free growth, and tax-free distributions for qualified medical expenses gives the HSA a unique place in the U.S. health and tax system.