- Learn the basics about HSAs and what defines a high-deductible health plan.
- Find the information you need about inflation adjustments for next year.
- Discover the benefits of HSAs.
The IRS recently released guidance providing the 2023 inflation-adjusted amounts for Health Savings Accounts (HSAs). High inflation rates will result in next year’s amounts being increased more than they have been in recent years. Want to know more about HSAs and what you can expect in 2023? Fiducial has more information below!
The basics of HSAs
An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high deductible health plan.” In addition, a participant can’t be enrolled in Medicare or have 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 (adjusted annually). In addition, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) can’t exceed $5,000 for self-only coverage and $10,000 for family coverage (adjusted annually).
Within specified dollar limits, individuals can take an above-the-line tax deduction for their individual 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 inflation.
Inflation adjustments for next year
In Revenue Procedure 2022-24, the IRS released the 2023 inflation-adjusted figures for contributions to HSAs, which are as follows:
Annual contribution limitation
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.
High deductible health plan defined
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 $1,400 and $2,800 for 2022). In addition, annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) won’t be able to exceed $7,500 for self-only coverage or $15,000 for family coverage (up from $7,050 and $14,100, respectively, for 2022).
Reap the rewards
There are a variety of benefits to HSAs. Individuals make contributions to the accounts on a pre-tax basis. Hence, the money can accumulate tax-free year after year. In addition, participants can withdraw money tax-free to pay for a variety of medical expenses. These expenses include doctor visits, prescriptions, chiropractic care, and premiums for long-term care insurance. Further, an HSA is “portable.” This means that it stays with an account holder if he or she changes employers or leaves the workforce. Have questions about HSAs at your business? Contact your employee benefits and tax advisors.