Are there exceptions for Health Savings Accounts?
A. If an individual does not stay in the HSA eligible plan 12 months following the last month of the year of the first year of eligibility, the amount which should not have been contributed will be included in income and subject to a 20% additional tax. Example: You established a qualified health plan in December 2010 and contributed the maximum allowed. Then in January 2011 you contributed the maximum contribution for that tax year. Scenario 1: You maintained coverage through December 31, 2011. You are eligible for the maximum contribution for both 2010 and 2011. Scenario 2: You ended coverage April 1, 2011. Eleven-twelfths of the December 2010 contribution must be treated as income, plus a 20% penalty on that amount must be paid. Nine-twelfths of the funds deposited in January must be taken out of the account as an excess contribution (and treated as income) but no 20% penalty is incurred.
