The IRS recently announced the updated Health Savings Account (HSA) contribution limits for 2022 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 2021 is $3,600, and a $7,200 annual deduction limit for a person with family coverage in a HDHP.
The annual deduction limit on HSA contributions for a person with self-only coverage under a HDHP will increase by $50 to $3,650 for calendar year 2022. The annual deduction limit for a person with family coverage under a HDHP will increase by $100 to $7,300 in 2022.
Before we dive deeper into the updates for 2022 outlined in Revenue Procedure 2021-25, the following is a brief refresher on HSAs.
As explained by the IRS, “A Health Savings Account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur.” In other words, the HSA was designed to pay for day-to-day medical costs 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.
It’s never too early to start thinking about future medical expenses and opportunities to save 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 benefits administration for HSAs in addition to other pre-tax plans. Fill out the form below to learn more.
Disclaimer: Please note that this is not all-inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding the specific application of the information to your own plan.