As more employers move away from group health insurance plans, more married couples have begun maintaining separate individual health insurance coverage. Since many marketplace health insurance plans can be supplemented with a health savings account (HSA), married couples can open two HSAs, one for each spouse, under certain conditions.
If you and your spouse each have HSA-eligible insurance coverage, and you both plan on contributing to your HSAs, you must have separate accounts. This is true even if you’re both covered by the same high-deductible health plan (HDHP).
The IRS has specific rules for HSA contribution limits and how they work with spouses. There are penalties for exceeding your contribution limits so it’s important to make sure you and your spouse know the rules.
In this article we’ll go over the regulations for HSA contributions, advantages to having two separate HSAs, and how HSAs can work alongside health reimbursement arrangements (HRAs).
The regulations for HSA contributions
For 2021, the self-only HSA contribution limit is $3,600 and the family contribution limit is $7,200. For 2022, the self-only limit will increase to $3,650, and the family contribution will increase to $7,300.
Contribution limits are based on the calendar year, meaning allowable contributions are prorated by the number of months an individual is eligible to contribute to an HSA. Individuals can make contributions at any point during the tax year through their federal tax return due date, typically April 15.
The IRS treats married couples as a single tax unit, which means they must share one family HSA contribution limit of $7,200, or $7,300 in 2022. If both spouses have self-only coverage, each spouse may contribute up to $3,600, or $3,650 in 2022, each year in separate accounts.
The IRS gives married couples three options for managing their HSA accounts:
- Split the family contribution evenly between the spouses
- Allocate it unevenly, according to a division both parties agree upon
- Put 100% in one spouse’s account
In any case, if a couple is maintaining two HSAs with one spouse having a family coverage plan and the other spouse with a self-only coverage plan, they can’t combine the contribution limits for a total of $10,800 (or $10,950 in 2022).
Advantages to having two separate HSAs
While it might seem cumbersome to track contributions for two separate HSAs, it can be beneficial for maximizing your savings. You and your spouse should consider managing two HSA accounts if one or both of you is 55 or older by the end of the year. This will make you eligible to contribute an additional $1,000 in catch-up contributions to your HSAs.
If both you and your spouse have employers who provide HSA contributions, two HSAs will increase your overall savings. But remember, you can't surpass the annual family maximum contribution limit or you will be penalized.
Excess HSA contributions and penalties
If an individual or married couple exceeds the HSA contribution limit, they will be subject to a 6% excise penalty tax. While excess contributions aren’t deductible, you can avoid the fee if you withdraw the excess contribution amount from the HSA before the tax deadline for that year.
Excess contributions could be used to pay for much needed medical expenses before the year is up, such as prescription eyeglasses or a year’s worth of contacts. If you’ve gone over the HSA contribution limit and can’t use it for approved medical expenses, talk to your personal tax advisor for other options.
How HRAs can work alongside HSAs
HSAs are even more valuable when combined with an HRA. With an HRA, employers choose an allowance of tax-free money for employees to get reimbursed for a wide variety of qualifying medical expenses. There are several advantages to using both accounts, such as lower health insurance premiums, greater control over employer contributions, flexibility on plan designs, as well as additional tax savings.
To qualify for an HSA, you must be covered by a HDHP. Employers who wish to offer HSA benefits can either let employees shop for their own policy and opt into the HSA benefit, or they can offer an HDHP and pair it with an HSA.
An HSA can work with any HRA, including the qualified small employer health reimbursement arrangement (QSEHRA) and the individual coverage HRA (ICHRA).
HSAs and the QSEHRA
Offering both an HSA and a QSEHRA is a great way to maximize tax-free compensation to employees. In order for a QSEHRA and an HSA to work together, the QSEHRA must reimburse insurance premiums only. Employees can use their allowance to purchase their own HDHP and use the money from their HSA to fund expenses their HDHP doesn’t cover.
Utilizing both your accounts to cover insurance premiums and out-of-pocket medical expenses creates a well-rounded and flexible health benefit option for you and your family.
HSAs and the ICHRA
Similar to the QSEHRA, an ICHRA must be set up to reimburse insurance premiums only for the employee to be eligible to make contributions to their HSA. However, unlike the QSEHRA, employees can individually opt-out of the ICHRA benefit and choose to only use their HSA benefit.
In addition, because HSA funds don’t expire, employees can choose not to utilize their HSA during the years they use their ICHRA. That way you can reap the benefits of growing your HSA funds for the future.
HRAs and HSAs have become increasingly popular in recent years as they help individuals and families pay for medical expenses and allow for more personalized control. While there is no such thing as a “joint” HSA, married couples can take advantage of the benefits HSAs offer by maintaining individual accounts.
By combining an HRA with their HSA, spouses can gain even more savings and set themselves up for financial success. If you’d like to learn more about HRAs and how they can work alongside your HSA, PeopleKeep can help. Schedule a call with one of our personalized benefit advisors and they’ll be happy to help you get started.
This article was originally published on September 1, 2020. It was last updated on October 4, 2021.