Informational Purposes Only
The following content has been prepared for informational purposes only, and should not be relied on for tax, legal, or accounting advice. Consult with a tax professional for your own reporting purposes.
Employment and health coverage changes are very common mid-year. Here are a few situations and what to remember:
You switched health plans mid-year.
There are three possible scenarios—let's discuss all three.
You switched from one HSA-eligible HDHP to another HSA-eligible HDHP.
This is easy. Your HSA contribution limit does not change.
You switched from a non-eligible health plan to a HSA-eligible HDHP.
If the last-month rule is met before the tax filing deadline, the full annual limit can be contributed. Otherwise, only a prorated limit applies.
You switched from a HSA-eligible HDHP to a non-eligible health plan or Medicare
A prorated limit applies, based on the number of eligible months from enrollment through the month eligibility ended.
The last-month rule
Under the last-month rule, an individual who is eligible on the first day of the last month of the tax year (December 1 for most taxpayers) is treated as eligible for the entire year — allowing a full annual contribution even if they weren't eligible earlier in the year. This holds even if a spouse has non-HDHP family coverage, as long as that coverage doesn't extend to the member.
Example of last-month rule
Say you're 40 and became eligible on December 1, 2026, with family HDHP coverage on that date. Under the last-month rule, you can contribute the full 2026 family limit of $8,750.
Testing period
Using the last-month rule requires you to remain eligible through the following 12 months (through December 31 of the next year). If you don't remain eligible, part of your prior year's contribution becomes taxable, plus a 10% additional tax, calculated on Form 8889, Part III.
Example of a testing-period failure
Say you become eligible December 1, 2026, with family coverage, and contribute the full $8,750 under the last-month rule. You lose eligibility in June 2027. Because you didn't remain eligible through the testing period (December 1, 2026 – December 31, 2027), you must include $8,020.83 in your 2027 income — the portion of the $8,750 not attributable to the one month you were actually eligible — plus a 10% additional tax on that amount.
You should only use the last-month rule if you're certain you'll remain eligible through the following year. Otherwise, it's safest to prorate your contribution limit each year and stay within that lower amount — a simpler, lower-risk approach
Family coverage reminder
If only one person is covered under your HSA-eligible health plan, that's individual coverage, and the prorated individual limit applies to you. No change is needed if two or more people remain covered.
Prorating the contribution limit
If the last-month rule isn't used, the limit is prorated based on eligible months. The formula is the same in every case: look at eligibility and coverage type month by month, add up each month's limit, and divide by 12.
Became eligible or lost eligibility partway through the year
Count the eligible months, divide by 12, and multiply by the annual limit for the coverage type held during those months.
Example of prorating for a mid-year eligibility change
Say you have self-only coverage and were eligible for 6 months in 2026 $4,400 × 6/12 = $2,200.
You changed coverage type mid-year (family ↔ individual)
Per the IRS Full Contribution Rule (Notice 2008-52), an annual limit can only increase, never decrease — so which option applies depends on the direction of the change:
Individual → family
The full family limit applies for the entire year. Since family coverage is always the higher limit, using the year-end coverage type is more favorable here.
Family → individual
The prorated limit applies — calculate each month's limit based on that month's actual coverage type, sum, and divide by 12. Applying the individual limit for the full year would be lower, so proration is more favorable here instead.
Example of prorating for a coverage type change
Say you had family coverage for 3 months and individual coverage for 9 months in 2026.
Prorated family: $8,750 × 3/12 = $2,187.50
Prorated individual: $4,400 × 9/12 = $3,300.00
Total: $5,487.50