HSA Contribution Limits for 2025

13 Nov 2024

Ashley Donohue

hsa contribution limit. woman using her hsa card

The IRS recently announced the updated Health Savings Account (HSA) contribution limits for 2025 along with the adjusted limits for corresponding High-Deductible Health Plans (HDHPs).

The annual deduction limit on HSA contributions for a person with self-only coverage under a High-Deductible Health Plan for calendar year 2025 is $4,300 (up from $4,150), and a $8,550 (up from $8,300) annual deduction limit for a person with family coverage in a HDHP.

Before we dive deeper into the 2024 – Present Revenue Procedures, the following is a brief refresher on HSAs.

HSAs Explained

As explained by the IRS, a Health Savings Account (HSA) is a tax-advantaged trust or custodial account you set up with a qualified HSA trustee to pay or provide reimbursement for certain medical expenses you incur. In other words, the HSA was designed to pay for day-to-day medical costs via HSA funds that an individual or family member may incur while remaining tax-free.

The account is owned by the employee and money is deposited directly into the individual’s account.

Employees may make contributions in the form of lump sum contributions or pre-tax payroll deductions. An employer may also contribute to the account.

As soon as funds accumulate, they are available. This differs from a health flexible spending account (FSA) that has uniform coverage, in which the full balance is available on the first day of the plan year.

HSA Tax Penalties

HSAs offer numerous tax benefits, but it’s important to understand the potential tax penalties associated with these accounts. One such penalty applies to excess contributions, which are contributions made above the annual contribution limit.

If employees contribute more than the allowable limit, you will be subject to a 6% excise tax on the excess amount. Additionally, any excess contributions made are considered taxable income in the year they are made. It’s important to educate your employees to keep track of contributions to avoid exceeding the limit and incurring these penalties.

Another tax penalty pertaining to HSAs relates to using the funds for ineligible expenses. Using HSA funds for non-qualified expenses before the age of 65 will lead to a 20% penalty on the amount used for such expenses. This penalty is in addition to any income tax owed on the withdrawn amount.

After the age of 65, the penalty for using HSA funds for ineligible expenses is reduced to the ordinary income tax rate. However, it’s essential to note that even after the age of 65, using HSA funds for ineligible expenses will still result in taxable income.

To avoid tax penalties, it is crucial to provide the proper information for employees to familiarize themselves with the eligible expenses for HSA funds and ensure that contributions do not exceed the annual contribution limit. By understanding these tax penalties, users can maximize the potential tax savings offered by HSAs.

Annual Contribution Limits for 2025

	2025	2024	Difference
HSA Contribution Limit	Single – $4,300 Family – $8,550	Single – $4,150 Family – $8,300	Up $150 Up $250
HSA Catch-Up Contribution (for individuals age 55 and older)	$1,000	$1,000	No change.
HDHP Maximum Out-of-Pocket	Single – $8,300 Family – $16,600	Single – $8,050 Family – $16,100	Up $250 Up $500
HDHP Minimum Deductible	Single – $1,650 Family – $3,300	Single – $1,600 Family – $3,200	Up $50 Up $100

It’s never too early to start thinking about future medical expenses, tax saving opportunities, and saving for retirement.

Remember, HSA contributions may be made through pre-tax salary reductions and/or on a post-tax basis, up to the maximum limit for that year. Post-tax contributions may be made up until the date an individual’s taxes are due.

Please read our disclaimer here.

Ashley Donohue

Ashley Donhue is an experienced legal professional with a diverse background in various legal roles. She began her career as an Academic Fellow at Chapman University’s Fowler School of Law, where she assisted first-year students with legal research and writing. Ashley further developed her practical legal skills through internships and externships at organizations such as the U.S. Department of Health and Human Services, Oakley, and the State Compensation Insurance Fund, where she focused on public service, regulatory affairs, and compensation insurance legalities. Ashley joined the PrimePay team in 2017, where she worked as a Regulatory Compliance Manager and Benefit Services Assistant Counsel before being promoted to Associate General Counsel. In her current role, Ashley manages significant legal aspects of the organization, ensuring overall regulatory compliance and legal integrity.

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FAQ

What are some benefits of an HSA?
There are plenty of benefits employees may enjoy having an HSA:

Post-tax contributions to your HSA made by you or someone other than your employer are tax deductible “even if you don’t itemize your deductions on Schedule A (Form 1040).”
-Employer contributions to an HSA (including cafeteria plan contributions) can be excluded from employees’ gross income.
-The contributions are kept in the account until they are used.
-You don’t have to pay taxes on the interest you receive in an HSA.
-You may make tax-free withdrawals for qualified medical expenses.
-An HSA is referred to as “portable,” meaning it follows you even if you move jobs or leave the workforce.

Additionally, HSAs can pay for non-medical expenses, however, these distributions will be subject to income tax. If the account holder is under age 65, the distribution will also be subject to an additional 20% excise tax.
Who is eligible for an HSA?
To be eligible for a Health Savings Account (HSA), individuals must meet certain requirements. First and foremost, they must be covered by a qualifying high-deductible healthcare plan (HDHP). For the year 2024, the minimum annual deductible for self-only plans is $1,600, while for family coverage, it is $3,200. Additionally, the out-of-pocket maximums for 2024 are $8,050 for self-only coverage and $16,100 for family coverage.

Furthermore, eligibility for an HSA also requires that the individual cannot be claimed as a dependent on someone else’s tax return, cannot be enrolled in Medicare, and cannot be covered by a non-HSA-eligible health insurance plan. These eligibility requirements help ensure that HSAs are utilized by those who can benefit from them the most.

In summary, to be eligible for an HSA, individuals must have an HSA-eligible healthcare plan with a minimum annual deductible and out-of-pocket limits.

They must also meet the conditions of not being claimed as a dependent, not being enrolled in Medicare, and not being covered by a non-HSA-eligible healthcare plan. These requirements aim to provide tax-advantaged savings for medical expenses and promote personal responsibility in managing healthcare costs.
What are the annual contribution limits for HSAs?
The contribution limits for HSAs vary depending on the type of coverage employees have. For self-only coverage, the contribution limit for 2024 is $4,150. For family coverage, the contribution limit is $8,300. These limits are subject to change each year, so it’s important to stay updated.
Can employees make catch-up contributions to my HSA?
Yes, if employees are age 55 or older, they can make additional catch-up contributions to their HSA. The catch-up contribution limit for 2024 is $1,000. This allows individuals nearing retirement to save more for future healthcare expenses.

Helping your employees understand HSA contributions and the associated rules is essential to making the most of their HSA benefits. Make sure to review the eligibility requirements, contribution limits, and rules regarding excess and catch-up contributions with employees to avoid any penalties or issues.
Whose purchases can a participant spend their HSA funds on?
HSA funds provide participants with a flexible tool to cover various medical expenses. When it comes to determining whose purchases HSA funds can be spent on, there are a few key considerations.

Firstly, an HSA participant can utilize their funds for eligible expenses for themselves. This includes medical services, prescription medications, and other qualified healthcare costs that they personally incur.

Secondly, participants can also use their HSA funds to pay for eligible expenses for their spouse. Whether it is their spouse’s medical treatments, prescriptions, or preventive care expenses, HSA funds can be utilized to cover these costs.

Additionally, HSA funds can be spent on eligible expenses for any HSA-eligible dependents claimed on the participant’s tax return. This includes children, stepchildren, adopted children, and other qualifying dependents who meet the IRS criteria for being claimed on a tax return.

Furthermore, HSA participants have the option to use their funds for eligible expenses for individuals they could have claimed as a dependent but were not able to. This could include adult children or other family members who may not meet the specific criteria for being claimed as a dependent but still require medical expenses to be covered.

Overall, HSA funds provide a valuable resource for HSA participants to cover eligible expenses for themselves, their spouse, any HSA-eligible dependents claimed on their tax return, and individuals they could have claimed as dependents but were not able to.
What happens when a participant contributes more to their HSA than is allowed?
When a participant contributes more to their HSA than is allowed, there are consequences and penalties that can occur. Excess contributions, which are any contributions exceeding the annual contribution limits set by the IRS, are treated as taxable income. This means that the excess amount is subject to federal income tax, just like any other taxable income.

In addition to being considered taxable income, excess contributions are also subject to a 6% excise tax. This excise tax is imposed by the IRS as a penalty for contributing more than the allowed limits. It is important for participants to be aware of the contribution limits to avoid this penalty.

If a participant realizes they have made excess contributions to their HSA, there are steps they can take to rectify the situation and avoid further penalties. The participant can contact their HSA provider and request a return of the excess amount. By removing the excess contributions, the participant can avoid the excise tax associated with the excess amount. It is crucial to rectify this situation in a timely manner to minimize penalties and ensure compliance with IRS regulations.

In summary, contributing more to an HSA than is allowed can result in taxable income and a 6% excise tax. To avoid these penalties, participants should be aware of the contribution limits, monitor their contributions throughout the year, and take immediate action to rectify any excess contributions.
How do HSA catch-up contributions work?
HSA catch-up contributions are an additional benefit available to participants who are 55 years of age or older. This provision allows them to contribute an extra $1,000 annually to their Health Savings Account (HSA).

For the year 2024, the maximum contribution limits for HSAs are set at $8,050 for those with self-only coverage and $16,100 for individuals with family coverage. However, individuals who are 55 years or older have the opportunity to contribute even more through catch-up contributions, boosting their total contributions for the year.

This catch-up contribution provision is especially valuable for participants approaching retirement or those with higher medical expenses. It offers them the chance to save more money in their HSA to cover medical costs during their retirement years.

To take advantage of catch-up contributions, individuals need to ensure they meet the eligibility requirements and have an eligible High Deductible Health Plan (HDHP). By making use of this additional contribution option, individuals can maximize their HSA savings and enjoy the tax benefits associated with these accounts.

In summary, HSA catch-up contributions are an added benefit for individuals aged 55 and older, allowing them to contribute an extra $1,000 annually to their HSA. These catch-up contributions, combined with the standard annual limits, enable participants to save even more for their medical expenses.
Corresponding health plan: What is required?
An HSA must be paired with a qualified high-deductible health plan (QHDHP) that meets the maximum out-of-pocket limits and minimum annual deductible requirements set annually by the IRS. See the chart below for more information.