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Family Changes Related to Marriage, Divorce, and New Children

How do family life changes like marriage, divorce, birth, and adoption affect your HSA? This page explores your options when these life changes take place.

Marriage

When you get married, you may choose to have a high deductible family health insurance plan; however, you cannot have a joint HSA under both of your names. Since the IRS views married couples as a single tax unit, if either spouse has a family health plan, you and your spouse may only contribute up to the annual family maximum, currently $7,100, to one HSA or split however they like between the two HSAs (if both spouses have their own HSA).

If both spouses keep individual health insurance plans, they can contribute up to the individual contribution max in both HSAs, currently $3,550.

Regardless of how you choose to make your contributions, once you are married you and your spouse can use your individual HSAs to pay for each other's qualified medical expenses.

Divorce

Spouses do not jointly own an HSA. In the event of a divorce or legal separation, the HSA owned by one spouse may be divided or given in part or full to the other spouse by court judgment. The movement of all or part of your HSA to a spouse or former spouse as required by a divorce decree is not a taxable transfer.  A former spouse may avoid paying taxes on the account if the funds are transferred and held in an HSA. If the spouse puts the HSA funds into a different type of account, the money would be taxable.

New Child

After giving birth or adopting a child, add your new family member to your health insurance plan as soon as possible. Your HSA contribution limit will be increased to the family coverage limit on the first day of the first full month after which you move to a family-coverage HDHP. However, if you're already on a family plan, your contribution limit will stay the same. The family contribution limit does not change regardless of how many people are using the family health plan.

Many medical expenses related to the birth of a child are eligible for HSA reimbursement. The child's health expenses are also eligible if they are a dependent. 

If the parents are not married and not on the same health plan, the mother must use her own HSA for any eligible medical expenses throughout pregnancy. The child is eligible to be added to the health plan belonging to whichever parent claims the child as a tax dependent. As soon as the child is born, whichever parent added the child to their health plan would be able to use his or her HSA to pay for the child's medical expenses.

Adoption

Medical expenses for an adopted child are eligible for HSA reimbursement once they become a tax dependent. Fees associated with the adoption process are not eligible.

How to determine your new annual contribution limit 

When you go through a life change event, you may be changing your health plan from a single plan to a family plan or vice versa. When that happens, your annual contribution limit changes. Annual limits are established for both types of plans, but what happens for the year that your status changes?

There are two methods to determine your new HSA annual contribution limit when you have a mid-year status change.

Per IRS rules, the method you will use is the one that allows the largest maximum contribution. As a result, if you are changing to a family plan and intend that change to be a long term change, you will generally use the 13-month method:

The 13-month rule

The 13-month rule is used when you expect your plan change to be in effect beginning December 1st of your current year through December 31st of the following year. 

Using this method, if you're changing to a family plan before December 1st, and you keep that status throughout 2021, you will be able to contribute the full family contribution of $7,100 for this tax year.

Michael starts 2020 with individual coverage, which has a contribution limit of $3,550, but gets married and switches to family coverage as of July 1, 2020. 

Under IRS rules, his maximum contribution is now  $7,100, the full family coverage amount for 2020.  

However he must follow the 13-month rule and maintain this coverage through December 31, 2021. 

Proration

If you don't use the 13-month rule, the other option is proration. If you are changing from a family plan to an individual plan, you can determine your contribution maximum by prorating the months spent in the calendar year with a family plan and the months spent in an individual plan. Here are the steps to determine what your contribution limit will be:

Prorate your family contribution limit
  1. Divide the annual maximum family contribution by 12.  Currently, this is $7,100 for the 2020 tax year, divided by 12.
  2. Determine the number of months you were covered by a family health plan.  
  3. Multiply the results from step 1 by the number of months determined in step 2.  
Prorate your individual contribution limit
  1. Divide the annual maximum family contribution by 12.  Currently, this is $3,550 for the 2020 tax year, divided by 12.
  2. Determine the number of months you were covered by an individual plan.
  3. Multiply the results from step 1 by the number of months determined in step 2.  
Determine your maximum contribution for the year
  1. Add the results of both operations together.  
  2. This total is your new maximum contribution for the tax year. Your result will be between $3,550 and $7,100. 

If you need any assistance calculating your new contribution max, please contact us at 800-859-2144.

Frequently asked questions

How soon after a life change is my HSA eligibility affected?
Your HSA eligibility status is determined monthly as of the first of each month.
If my spouse has a family HDHP with an HSA, and I lose coverage under my individual HDHP, can I still contribute to my HSA? 
If you lose HDHP coverage during a tax year, you must prorate the maximum contribution for the number of months you had eligible coverage. You have until the tax filing deadline for that year to make those contributions.
Can I roll my HSA into my spouse’s HSA?
No, you cannot roll your HSA into his or her HSA.
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