The IRS recently released guidance providing the 2023 inflation-adjusted amounts for Health Savings Accounts (HSAs). High inflation rates will result in the increase of next year’s amounts more than they have been in recent years.
Establishing an HSA is a trust exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary”. Establishing an HSA can only be for the benefit of an “eligible individual”. Additionally, coverage for this eligible individual must be under a “high deductible health plan”. Lastly, this excludes enrollment for a participant in Medicare or any other health coverage. Exceptions to this rule include dental, vision, long-term care, accident and specific disease insurance.
A high deductible health plan (HDHP) is generally a plan with an annual deductible that isn’t less than $1,000 for self-only coverage and $2,000 for family coverage. In addition, the sum of the annual deductible and other annual out-of-pocket expenses needs to be paid under the plan for coverage of benefits (but not for premiums). The sum can’t exceed $5,000 for self-only coverage, and $10,000 for family coverage.
Within specific dollar limits, an above-the-line tax deduction is allowable for an individual’s contribution to an HSA. This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for rising inflation.
In Revenue Procedure 2022-24, the IRS released the 2023 inflation-adjusted figures for contributions to HSAs. The HSA 2023 limits are are as follows:
For calendar year 2023, the annual contribution limitation for an individual with self-only coverage under an HDHP will be $3,850. For an individual with family coverage, the amount will be $7,750. This is up from $3,650 and $7,300, respectively, for 2022.
In addition, for both 2022 and 2023, there’s a $1,000 catch-up contribution amount for those who are age 55 and older at the end of the tax year.
For calendar year 2023, an HDHP will be a health plan with an annual deductible that isn’t less than $1,500 for self-only coverage or $3,000 for family coverage. These amounts are respectively $1,400 and $2,800 for 2022).
In addition, annual out-of-pocket expenses won’t be able to exceed $7,500 for self-only coverage or $15,000 for family coverage. These amounts are up from $7,050 and $14,100, respectively, for 2022. These out-of-pocket expenses include deductibles, co-payments, and other amounts, excluding premiums.
There are a variety of benefits to HSAs. Contributions to the accounts are on a pre-tax basis. The money can accumulate tax free year after year and can be withdrawn tax free to pay for a variety of medical expenses. Examples includes doctor visits, prescriptions, chiropractic care and premiums for long-term care insurance. In addition, an HSA is “portable.” It stays with an account holder if he or she changes employers or leaves the workforce. If you have questions about HSAs, the high inflation rates, or the recently passed Inflation Reduction Act – contact your employee benefits and tax advisors.