Prorating an HSA limit by eligible month
Calculate contribution room when coverage starts, ends, or changes without treating partial months as eligible.
Under the ordinary rule, add one-twelfth of the applicable annual limit for each month you are eligible on the first day, using the coverage tier in effect that day.
Create a twelve-row eligibility table
For each month, record first-day HDHP coverage, self-only or family tier, disqualifying coverage, Medicare, dependency status, and catch-up eligibility. Coverage beginning on the second day normally does not count until the next month.
Coverage tier changes the monthly amount
Family coverage contributes one-twelfth of the family limit; self-only coverage contributes one-twelfth of that limit. The last-month rule is a separate calculation with a testing period, not a shortcut for every partial year.
Example and common mistake
Coverage begins March 15. March normally does not count because the person lacked coverage on March 1; April is the first ordinary eligible month. Prorating by days or pay periods is the common mistake.
Use a twelve-row calculation
Make one row for each month and record the coverage tier and eligibility status on that month's first day. Assign one-twelfth of the applicable self-only or family limit to eligible rows, then add one-twelfth of the catch-up amount when age and eligibility permit. This method handles midyear enrollment, coverage changes, Medicare, and disqualifying coverage without day-count approximations.
Keep the effective-date notices supporting every transition. Compare the result with all deposits for the tax year, including employer money. If the last-month rule is used instead, label the workpaper clearly and calendar the testing-period end so a later coverage change is not missed.
Questions to resolve
- What was the first-day status for all twelve months?
- Which months used self-only versus family coverage?
- Were catch-up and employer amounts included in the same monthly workpaper?
Federal authority record
- U.S. House Office of the Law Revision Counsel: 26 U.S.C. section 223 - Health savings accounts
HSA eligibility, contribution limits, qualified distributions, and beneficiary rules - IRS: Publication 969 — HSAs and other tax-favored health plans
Monthly eligibility, last-month rule, spouses, Medicare, and excess contributions - IRS: Instructions for Form 8889
HSA contribution, deduction, distribution, excess, and filing rules