What Is the HSA Last-Month Rule? Testing Period and Medicare Trap

The HSA last-month rule lets you contribute the full annual Health Savings Account maximum for the year even if you only became eligible partway through it, as long as you qualify as an eligible individual on December 1. For 2026, that means up to $4,400 with self-only high deductible health plan coverage or $8,750 with family coverage, plus a $1,000 catch-up if you’re 55 or older. The tradeoff is a testing period: you must stay HSA-eligible through December 31 of the following year, or the IRS recaptures the extra amount as income and adds a 10% penalty.

How the Rule Overrides Proration

Normally, HSA contributions are prorated by month. The IRS gives you one-twelfth of the annual maximum for each month you held qualifying HDHP coverage.¹ Enroll in a self-only HDHP on November 1, 2026, and proration would cap you at two-twelfths of $4,400, roughly $733.

The last-month rule replaces that math. If you’re an eligible individual on December 1, the IRS treats you as if you had qualifying coverage every month of the year, and you can contribute the full annual limit.² Someone who starts an HDHP in October, November, or December can shelter the whole annual amount from tax rather than a fraction of it.

Who Qualifies on December 1

To use the rule, you must meet every standard HSA eligibility requirement on December 1 of the tax year (or the first day of the last month of your tax year if it isn’t a calendar year).

Enrolled in a qualifying HDHP. For 2026, that means a minimum annual deductible of $1,700 self-only or $3,400 family, with out-of-pocket costs (excluding premiums) capped at $8,500 self-only or $17,000 family.³
No disqualifying other coverage. You can’t be covered under a non-HDHP that provides benefits your HDHP also covers. Stand-alone dental, vision, and long-term care plans are fine.²
Not claimed as a dependent on anyone else’s tax return.²
Not enrolled in any part of Medicare. Medicare enrollment drops your contribution limit to zero.¹
Not participating in a general-purpose FSA or HRA. Limited-purpose FSAs restricted to dental and vision are allowed.

Meet all of these on December 1 and you can contribute as if you had been eligible the entire year.

2026 Contribution Amounts

When the rule applies, you contribute up to the full annual limit for your coverage type on December 1:³

Self-only HDHP coverage: $4,400
Family HDHP coverage: $8,750
Age 55 or older: an extra $1,000 catch-up, fixed by statute and not indexed for inflation²

If your coverage type changed during the year, the IRS says to use the greater of the prorated worksheet result or the full annual maximum for the coverage type you held on December 1.⁴ With family coverage on December 1, you can generally just enter the family maximum.

Employer contributions count against the same limit. If your employer put $2,000 in, your remaining room under self-only coverage is $2,400, not $4,400.⁵ Going over creates an excess contribution taxed at 6% for every year it stays in the account, unless you withdraw the excess and its earnings before your tax filing deadline, including extensions.¹

The Testing Period

Claiming the full-year contribution commits you to a testing period that runs from December 1 of the contribution year through December 31 of the following year, roughly 13 months.¹ Use the rule for 2026 and your testing period runs from December 1, 2026, through December 31, 2027.

Throughout those 13 months, you must remain enrolled in a qualifying HDHP, avoid picking up disqualifying coverage, and stay otherwise eligible. Changing jobs is fine if the new plan is also an HDHP. What breaks the testing period is dropping to a low-deductible plan, enrolling in Medicare, or losing HSA-qualifying coverage altogether.

What Happens If You Fail It

If you lose eligibility during the testing period for any reason other than death or disability, the IRS reverses the benefit. The amount you contributed above what proration would have allowed gets added to your gross income in the year you lose eligibility (not the year you contributed).¹ You also owe a 10% additional tax on that recaptured amount.²

An example makes the stakes clear. Say you enroll in family HDHP coverage on December 1, 2026, use the last-month rule, and contribute the full $8,750. Proration would have allowed roughly $729 for that one month. Switch to a non-qualifying plan in June 2027, and about $8,021 gets added to your 2027 taxable income, plus roughly $802 in penalty tax on top.

The Medicare Trap Near Age 65

Medicare deserves special attention because it can quietly break the testing period. Enrolling in Medicare Part A or Part B ends your HSA eligibility immediately.¹

The retroactive piece is what catches people. When you sign up for Medicare after 65, Part A coverage is backdated up to six months (but not before your 65th birthday). Claim Social Security and you’re automatically enrolled in Part A with no opt-out. If you were contributing to an HSA during those retroactive months, the contributions become excess. Anyone approaching 65 who plans to use the last-month rule should generally stop HSA contributions at least six months before enrolling in Medicare.

Contribution Deadline and Form 8889

You don’t have to fund the account by December 31. Contributions for a given tax year can be made through the tax filing deadline of the following year. For 2026, that’s April 15, 2027.¹ Become eligible on December 1, 2026, and you have more than four months to put the full amount in and still claim it on your 2026 return.

Every HSA owner who contributes or takes distributions files Form 8889 with the federal return.⁶ Line 3 is the one that matters for last-month rule users. Enter the full annual maximum for the coverage type you held on December 1, not a prorated figure.⁴ The deduction flows to Schedule 1 and reduces your adjusted gross income whether you itemize or not.

If you later fail the testing period, the recapture goes on Part III of Form 8889 in the year eligibility ended, with the 10% additional tax reported on Schedule 2.⁴ Keep your Form 8889 for at least three years, because the testing period spans two tax years and the IRS may want to see both.

State Tax Treatment

Most states follow the federal treatment, so HSA contributions cut your state taxable income the same way they cut your federal income. A few don’t. California and New Jersey tax HSA contributions, earnings, and capital gains at the state level. If you live in a non-conforming state, the last-month rule still helps your federal return but won’t lower your state tax. Confirm your state’s rules before assuming the full benefit carries over.

1
Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans
2
Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
3
Internal Revenue Service. Rev. Proc. 2025-19
4
Internal Revenue Service. Instructions for Form 8889 (2025)
5
Internal Revenue Service. HSA Contributions
6
Internal Revenue Service. About Form 8889, Health Savings Accounts (HSAs)