Ashley Donohue The IRS recently announced the updated Health Savings Account (HSA) contribution limits for 2023 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 HDHP for calendar year 2023 is $3,850 (up from $3,600), and a $7,750 (up from $7,200) annual deduction limit for a person with family coverage in a HDHP.
2022 highlights: The annual deduction limit on HSA contributions for a person with self-only coverage under a HDHP increased by $50 to $3,650 for calendar year 2022. The annual deduction limit for a person with family coverage under a HDHP increased by $100 to $7,300 in 2022.
Before we dive deeper into the updates for 2023 outlined in Revenue Procedure 2022-24, 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.
What are some benefits of an HSA?
There are plenty of benefits you 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).”
- Your employer’s contributions to your HSA (including cafeteria plan contributions) can be excluded from your 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.
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 and minimum annual deductible requirements set annually by the IRS. See the chart below for more information.
Annual contribution limits.
|
2022* |
2023** |
|
|
HSA Contribution Limit |
Single – $3,650 Family – $7,300 |
Single – $3,850 Family – $7,750 |
|
HSA Catch-Up Contribution (for individuals age 55 and older) |
$1,000 |
$1,000 |
|
HDHP Maximum Out-of-Pocket |
Single – $7,050 Family – $14,100 |
Single – $7,500 Family – $15,000 |
|
HDHP Minimum Deductible |
Single – $1,400 Family – $2,800 |
Single – $1,500 Family – $3,000 |
*Source: https://www.irs.gov/pub/irs-drop/rp-21-25.pdf
** Source: https://www.irs.gov/pub/irs-drop/rp-21-25.pdf
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.
How PrimePay can help.
PrimePay offers employee benefits administration software for HSAs in addition to other pre-tax plans, such as HRAs, FSAs, and more.
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