HSA Contribution Limits: A Guide for Employers

The Internal Revenue Service (IRS) updates Health Savings Account (HSA) contribution limits yearly. This caps the amount employers and employees can add to the fund, but other factors also limit contributions: Coverage type, age, and eligibility period are a few to consider.

While an HSA can be an attractive benefit, miscalculations lead to noncompliance and tax penalties. Understanding contribution limits lets you confidently offer this perk without worrying about potential pitfalls.

Read on to learn what employers need to know about how these limits work.

How Do HSA Contribution Limits Work?

An HSA is a tax-advantaged savings account that U.S. employees draw from to cover qualified medical expenses. To contribute to one, employees must be covered under a high-deductible health plan (HDHP). 

The IRS adjusts HSA contribution limits yearly, largely to keep pace with inflation. It set the 2027 contribution limits at $4,500 for self-only coverage(opens in a new tab) and $9,000 for family coverage. That’s up from $4,400 and $8,750, respectively, in 2026.

Here’s how the 2026 and 2027 limits compare:

Several other factors influence an employee’s contribution limits. These include:

• Coverage type: There are two main coverage types, self-only and family. Self-only coverage includes the employee only. Family coverage, which has a higher limit, includes both the employee and at least one other person. 

• Age: Employees aged 55 years or older can contribute an additional $1,000 annually (called a catch-up contribution). But unlike standard contribution limits, this amount is fixed by law. The IRS doesn’t adjust it annually. 

• Eligibility period: Eligibility is determined on a month-by-month basis. In practice, an employee who’s eligible for part of the year will receive a prorated limit. 

• Last-month rule: An employee who’s eligible on Dec. 1 can contribute the full annual limit, even if they become eligible midyear. However, they must remain eligible through Dec. 31 of the following year. Otherwise, additional contributions (beyond the prorated limit) may become taxable income and subject to an additional 10% tax. 

Do Employer Contributions Count Toward the HSA Limit?

The annual limit, set by the IRS, applies to all contributions, including the employee’s, employer’s, and anyone else’s (like a family member). That means every dollar an employer contributes reduces the amount the employee can add. 

Consider an employee, age 57, who has self-only HDHP coverage for all of 2027. Their HSA contribution limit is $5,500. That’s $4,500, plus their $1,000 catch-up contribution. If their employer contributes $1,000, the employee can only contribute up to $4,500 more. 

A cafeteria plan lets employees fund certain benefits, like HSAs, with pretax wages. The IRS treats these pretax HSA contributions as employer contributions. Employers may also make separate contributions toward an employee’s HSA. 

Employer contributions, including those made through a cafeteria plan, are typically exempt from certain taxes. This includes federal income tax, Social Security, Medicare, and federal unemployment (FUTA) taxes. Employers report them in box 12 of the employee’s Form W-2, using code W. 

Once an employer makes a contribution, it belongs to the employee. The employer typically can’t reclaim it, even if the employee leaves the company. 

What Are the Health Savings Account Eligibility Requirements?

Employees must meet eligibility requirements to receive this benefit and start contributing. Section 223(opens in a new tab) of the Internal Revenue Code sets four key HSA eligibility requirements:

• HDHP coverage: The employee must be covered by a qualifying HDHP on the first day of the month (to be eligible for that month). For 2027, an HDHP’s minimum deductible is $1,750 for self-only coverage and $3,500 for family coverage. Annual out-of-pocket costs, excluding premiums, are capped at $8,700 and $17,400, respectively.

• Disqualifying coverage: Certain types of health coverage can disqualify an employee from contributing to an HSA. This includes a spouse’s non-HDHP plan that covers them and a general-purpose health flexible spending account (FSA). Not all coverage is disqualifying. For example, employees can have health reimbursement arrangements alongside HSAs under certain rules.

• Medicare: Being eligible for Medicare doesn’t automatically disqualify employees, but enrolling does. For every month an employee is enrolled in Medicare, their HSA contribution limit is $0. The same goes for months of Medicare coverage backdated following a late application. 

• Dependent: The employee can’t be someone another taxpayer, say a parent, can claim as a dependent. This applies even if the employee meets all other eligibility requirements. 

The primary responsibility of monitoring eligibility falls on the employee. Employers are only responsible for two details.

The first is verifying the employee’s coverage under an employer-sponsored HDHP, which confirms baseline eligibility. The second is checking the employee’s age, since this confirms whether they qualify for catch-up contributions.

For guidance on your specific circumstance, see the latest edition of IRS Publication 969(opens in a new tab). 

What Happens if HSA Contributions Exceed the Annual Limit?

Contributions above an employee’s annual limit are called excess contributions. More often than not, these happen by accident. Employer and employee contributions may lack coordination, for example, and exceed the cap. 

Unlike contributions within the annual limit, employees can’t deduct excess contributions from their taxable income. They also owe a 6% excise tax on the excess for each year it remains in the HSA. To avoid this excise tax, the employee can withdraw the excess and any earnings from it by their tax filing deadline (or extended deadline). 

If an employer contribution exceeded the limit due to an error, the employer may ask the HSA trustee or the institution that holds it to return the excess. If the employer does not recover the excess, they must report it as taxable wages on the employee’s Form W-2.

How Can Employers Help Employees Manage HSA Contributions?

There are steps you, as an employer, can take to support employees in managing their HSA contributions. Here are a few ways you can help: 

• Employee education: Help employees understand HSA contribution limits and eligibility. Cover all necessary ground, from how employer contributions count to which coverage types are disqualifying. If you need a solid starting point, check out our FSA and HSA guide for employees.

• Contribution tracking: If an employee contributes through payroll, cap their election (chosen contribution amount) at their annual limit, minus your contributions. Make a point of updating this cap when limits and their coverage changes. 

• Flexible elections: Offer employees a simple way to start, stop, or change their payroll contributions. Purpose-built solutions, like Justworks PEO, can simplify these processes for all parties involved.

Responsibility primarily rests with the employee. But mindful contribution practices are a great way to support your people and mitigate your company’s risk. 

Simplify Benefits Administration With Justworks PEO

Justworks PEO provides simple HSA access, via Optum Financial. It automates key admin processes, from enrollment and payroll deductions to contribution payments, so you can reduce human error and spend more time on strategic people work. 

US Lab Partners uses Justworks to offer competitive benefits packages. Justworks gives employees a self-service hub to access information and sends convenient renewal notifications. Consistent HR support also enables teams to manage enrollment deadlines and end-of-year benefit checklists.

As Kyrie Stevens, Chief Business Officer at US Lab Partners, explained: 

“With Justworks, we’re able to attract and keep our talent by offering high-quality benefits. Because we want to give our employees a good environment to work in. If we’re helping them, it makes for better productivity and better corporate culture.”

Ready to try it for yourself? Get started with Justworks today. 

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.

FAQ

Can Employees Change Their HSA Contributions During the Year?

Yes, employees can change their HSA contributions during the year. Employees can initiate changes without a qualifying life event, and all changes apply going forward only, not retroactively. 

Can Both Spouses Make HSA Contributions?

Yes. HSAs are individually owned, but one spouse can still contribute to the other’s. If either spouse has family coverage that includes the other, both share the same limit: $9,000 for 2027. This one limit applies even if each spouse has a separate HSA. 

Can Employees Make HSA Contributions Outside of Payroll?

Yes, employees can choose to make direct HSA contributions outside of payroll. They can typically deduct these contributions on their tax return. 

Can an Employer Contribute Different Amounts to Employees' HSAs?

Yes, within limits. These limits may include adhering to comparability rules under Internal Revenue Code Section 4980G(opens in a new tab). This means employers must make similar contributions to comparable employees. Failing to do so can trigger a tax. 

What’s the Max HSA Contribution?

For 2027, the HSA annual contribution limit is $4,500 for self-only coverage and $9,000 for family coverage. Employees 55 or older can add $1,000 as a catch-up contribution. 

Who Sets Health Savings Account Rules?

The IRS sets HSA rules. It updates a guide annually, titled IRS Publication 969(opens in a new tab), which explains these rules in detail.