Contributed by: Joshua C, FreeTaxUSA Agent, Tax Pro
A Health Savings Account (HSA) can be a valuable asset. It can help you pay certain medical expenses with tax advantages. If you have an employer who contributes to your HSA through payroll deductions, and/or if you contribute your own money, those contributions may reduce your taxable income for the year. The annual contribution rules, however, can be confusing, especially if your HSA eligibility changes during the year.
Remember that the annual HSA contribution limit includes both your contributions and any contributions your employer makes for you. If your employer contributes to your HSA, include that amount when deciding how much more you can add to stay within the annual limit.
This article explains HSA eligibility, how much you can contribute, and how the last-month rule may let you contribute more if you meet certain requirements.
Am I eligible to contribute to an HSA?
According to IRS rules, in order to put money into an HSA, you must:
The total amount you can contribute to an HSA in a single year is limited based on whether you have self-only HDHP coverage or family HDHP coverage. The limit also adjusts each year to account for inflation. In 2025, the limit was $4,300 for self-only plans and $8,550 for family plans. In 2026, the limit is $4,400 for self-only plans and $8,750 for family plans.
You can contribute an additional $1,000 to your HSA if you’re age 55 or older at the end of the tax year.
What’s the last-month rule?
Normally, if your HSA eligibility changes during the year, the maximum you can contribute to your HSA is allocated by the month. Eligibility for each month is determined by whether you were eligible on the first day of that month.
Example 1: Ji-woo is enrolled in a HDHP through his employer at the beginning of 2026, but he changes jobs in April and starts a low-deductible health plan with his new employer. His full-year contribution limit would be $4,400, but he’s only eligible for 4 months of contributions (because he was eligible through April 1, but not May). Therefore, his limit per month is simply $4,400 ÷ 12 = $366.67. Multiply that amount by the 4 months he was eligible, and his total contribution limit for the year is $1,466.67.
There’s an exception to this standard, which is called the “last-month rule.” According to this rule, if you’re eligible to contribute to an HSA on the first day of the last month of the tax year (meaning December 1st for individual income tax returns), then you can be considered eligible for the entire year.
However, this is only intended for people who will remain eligible for at least the full following year as well, meaning it shouldn’t be used if you’re only eligible for a short time. To enforce this, the IRS implements a testing period, which continues from the last month of the year until the end of the last day of the last month of the following year (that is, December 1st of one year until December 31st of the following year).
You must remain eligible to contribute to an HSA for the entire testing period. If you lose eligibility before the testing period ends, the amount you contributed which exceeds your normal monthly limit will need to be “recaptured,” or added back to your taxable income, in the year you lose eligibility. In addition to regular income tax on this amount, the IRS will charge a 10% penalty tax on the amount.
In short, the last-month rule can help if you become HSA-eligible late in the year and expect to stay eligible throughout the entire testing period. If you’re unsure whether you’ll keep qualifying coverage, it may be safer to contribute only the prorated monthly amount.
Example 2: Jared started a new job in late October of 2026 and meets all eligibility rules to contribute to an HSA under a family HDHP plan. Because he’s eligible on December 1st, he’s allowed to make contributions for 2026 up to the limit for the full year, which is $8,750 for the family. If he remains eligible until December 31, 2027, there’ll be no problem with this extra deduction. However, if Jared were to enroll in Medicare (or otherwise become ineligible) in May of 2027, he loses eligibility and will need to increase his 2027 taxable income by the amount that he shouldn’t have contributed.
In this example, the excess amount would be calculated by finding the amount he’d normally be able to contribute if not for the last-month rule. The monthly amount would be $8,750 ÷ 12 = $729.17 (rounded). Jared was only eligible for two months (November and December of 2026), which makes his total contribution limit $1,458.33.
If he made the full $8,750 contribution, he’d then have to add $7,291.67 to his taxable income for 2027 and expect an additional 10% tax on that as well.
Bottom line
For many people, the last-month rule is an excellent opportunity to maximize the value of an HSA and receive a larger tax deduction.
Before using the last-month rule to make a full year’s worth of contributions, make sure you plan to remain HSA-eligible through the end of the following year. If, for example, you expect to retire, enroll in Medicare, or change your health insurance coverage, carefully consider whether the potential tax savings from the HSA will outweigh the risk of having to add the income back and pay the penalty.
As with many tax provisions, proper planning and awareness are key to deciding whether the last-month rule helps you make the most of your HSA without creating an unexpected tax cost later.