The IRS has released guidance that includes the 2024 inflation-adjusted amounts for Health Savings Accounts (HSAs). HSAs allow taxpayers to save money for health care expenses in a tax-advantaged way. But contributions can be made only if the taxpayer has a high-deductible health plan (HDHP).
Employers that offer HDHPs can also offer HSAs as a way for employees to fund the high deductibles and other medical expenses pre-tax from their paychecks. (Employer contributions are optional.) Individuals with an HDHP who don’t have an employer-provided HSA, such as the self-employed, can set up their own HSA and make tax-deductible contributions to it.
What are the benefits?
The benefits of HSAs include the following:
- Contributions are made on a pretax or tax-deductible basis.
- Funds can be withdrawn tax-free to pay for a variety of medical expenses, such as doctor visits, prescriptions, and long-term care insurance premiums (up to applicable limits).
- HSAs have no “use-it-or-lose-it” requirement. The full unused account balance can carry over from year to year, with no time limit on when it must be used.
- HSAs are “portable,” meaning the account stays with the employee even if he or she changes jobs or leaves the workforce.
As noted earlier, to be eligible to contribute, an individual must be covered under a an HDHP (defined below). Participants in an HSA cannot be enrolled in Medicare or have other health coverage, though there are exceptions, which include dental, vision, long-term care, accident and specific disease insurance.
The annual HSA contribution limitation as well as the annual HDHP minimum deductible and maximum out-of-pocket expenses under the tax code are adjusted annually for inflation.
Inflation adjustments for next year
In Revenue Procedure 2023-23, the IRS released the 2024 inflation-adjusted figures for contributions to HSAs, which are as follows:
Annual contribution limitation. For calendar year 2024, the annual contribution limitation for an individual with self-only coverage under a HDHP will be $4,150. For an individual with family coverage, the amount will be $8,300. This is up from $3,850 and $7,750, respectively, in 2023.
There’s an additional $1,000 “catch-up” contribution amount for those age 55 and older in 2024 (same as for 2023).
HDHP defined. For calendar year 2024, an HDHP will be a health plan with an annual deductible that isn’t less than $1,600 for self-only coverage or $3,200 for family coverage (up from $1,500 and $3,000, respectively, in 2023). In addition, annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) won’t be able to exceed $8,050 for self-only coverage or $16,100 for family coverage (up from $7,500 and $15,000, respectively, in 2023).
Questions?
HSAs can be beneficial to both employers and individual taxpayers. Contact your employee benefits and tax advisors if you have questions about HSAs.