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April 25, 2005 -- Can you explain the HSA (health savings account) contribution rules for married taxpayers?

A new ruling explains how the HSA eligibility and contribution rules apply to a married individual who has HDHP (high-deductible health plan) coverage if his spouse also has non-HDHP family coverage. It concludes that a married individual in this situation may contribute to an HSA, as long as he is not covered by his spouse's non-HDHP.

HSAs for married individuals. Eligible individuals may set up HSAs if they are covered under HDHPs and not covered under any other non-HDHPs (except for certain permitted limited insurance or coverage). In general, if either spouse has family coverage, both are treated as having only such family coverage. Also, if each spouse has family coverage under different health plans, both are treated as having family coverage under the plan with the lowest deductible. However, if one spouse has HDHP family coverage and the other spouse has non-HDHP self-only coverage, the spouse with the HDHP family coverage is an eligible individual and may contribute to an HSA up to the amount of the annual contribution limit. A spouse covered by a non-HDHP isn't an eligible individual and can't contribute to an HSA, notwithstanding the rule treating both spouses as having family coverage.

Three situations to clarify that an otherwise qualifying eligible individual may make HSA contributions even if his spouse has non-HDHP family coverage, as long as the individual isn't covered by the spouse's non-HDHP, are found below. The maximum amount that the eligible individual may contribute to an HSA depends on whether he has self-only or family HDHP coverage.

Situation 1. Harry and Wanda are married and both are age 35. Throughout 2005, Harry has self-only coverage under a high deductible health plan (HDHP) with a $2,000 annual deductible. He has no other health coverage, isn't enrolled in Medicare and can't be claimed as a dependent on another taxpayer's return. Wanda has non-HDHP family coverage for Wanda and Harry's two dependents, but Harry is excluded from Wanda's coverage.

Although Wanda has non-HDHP family coverage, Harry isn't covered under her plan and therefore is eligible to contribute up to $2,000 to an HSA (lesser of the HDHP deductible for self-only coverage or $2,650) for 2005. Wanda has non-HDHP coverage and is therefore not an eligible individual.

Situation 2. The facts are the same as in Situation 1, except that Harry has HDHP family coverage for himself and one of Harry's and Wanda's dependents, with an annual deductible of $5,000. Wanda has non-HDHP family coverage for herself and their other dependent only, but not for Harry. Because the non-HDHP family coverage does not cover Harry, he may contribute up to $5,000 to an HSA (the lesser of the family HDHP deductible or $5,250). Wanda has non-HDHP coverage and can't make an HSA contribution.

Situation 3. The facts are the same as in Situation 1, except that Harry has HDHP family coverage for himself and Harry's and Wanda's two dependents with an annual deductible of $5,000. Wanda is not covered under Harry's health plan and has no other health plan coverage. Harry may contribute up to $5,000 to an HSA (the lesser of the family HDHP deductible or $5,250).

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