IRS Releases HSA Contribution Limits for 2024

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.

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.

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.

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.

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.

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.

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.

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.