What is the HSA Last-Month Rule?
The HSA last-month rule allows employees who are enrolled in a High-Deductible Health Plan (HDHP) as of December 1 to contribute up to the full annual HSA contribution limit, even if they were not eligible for the entire year.
This rule includes a testing period requirement—the employee must remain HSA-eligible through the end of the following year. If this requirement is not met, the employee may be subject to taxes and a 10% penalty. Employees interested in this approach should evaluate the nuances and tax considerations with their independent tax advisor.
Admin Responsibilities
Forma does not monitor or validate HDHP eligibility. As an admin, you are responsible for ensuring:
- The HDHP eligibility field in the demographic file is accurately set (e.g., TRUE)
- Eligibility status is maintained appropriately for the remainder of the plan year
- The elections file includes the employee election information
- Employees are HDHP-eligible before submitting HSA contribution files
File Processing Behavior in Forma
Forma processes HSA contributions in accordance with employer and employee elections, including contributions made by employees who elect to apply the last-month rule under IRC § 223(b)(8). Provided that accurate HDHP eligibility, election, and contribution data are submitted, contributions made under the last-month rule are administered on the same basis as any other HSA contribution.
Forma’s system does not validate contributions based on the duration of HDHP eligibility within a plan year. As a result, the following scenarios will process without error:
- Full annual election submitted in December:
Employees can have a December account start date while contributing the maximum annual amount - Per-pay-period contributions:
Standard contribution amounts will process as submitted, without additional system checks related to eligibility timing
Summary
The HSA last-month rule enables employees who become eligible late in the year to maximize their contributions. However, it also places greater responsibility on administrators to ensure eligibility is verified and accurately reflected in file submissions, as Forma does not perform these validations.