The annual inflation-adjusted limits on deductions for contributions to a health savings account (HSA) for 2020 were recently released by the IRS. The increases allow for employees to put a little more money into their HSAs next year. These contributions affect taxpayers who participate in a high-deductible health plan (HDHP).
For those who participate in these HDHPs, they are allowed a pre-tax payroll deduction for contributions to HSAs, which help pay unreimbursed medical expenses (but not premiums). Individuals can contribute to HSAs, or employers can contribute on behalf of employees. The new annual limits for 2020 on HDHP deductible contributions are:
- $3,550 for individual coverage (up $50 from 2019)
- $7,100 for family coverage (up $100 from 2019)
The annual deductible limits are also subject to inflation adjustments. For 2020, the following minimum deductibles for a qualifying HDHP were increased to:
- $1,400 for individual coverage (an increase of $50)
- $2,800 for family coverage (an increase of $100)
The upper limit for out-of-pocket expenses (deductibles, co-payments, etc.) was increased to:
- $6,900 for individual coverage (was $6,750 last year)
- $13,800 for family coverage (was $13,500 last year)
There is no change for the HSA catch-up contributions for age 55 or older. This remains $1,000.
Each year, HSA contribution limits are adjusted for inflation using the Consumer Price Index for All Urban Consumers. However, the catch-up contribution is fixed by statute. Though the increases in these limits are tied to cost-of-living adjustments, health care costs outpace inflation, so Americans spend more money out-of-pocket each year.
Enrollment in HSAs continues to grow. Many employees look at these accounts as a way to save for medical expenses in retirement. And, more employers are offering employers contributions to their accounts.
An HSA is a great way to maximize health care dollars and minimize tax burden. They do require planning by both the employer and the employee. For employers, contact our retirement plan services team to discuss offering this type of plan at your company. If you are an employee, talk to your financial professional today to see if you could benefit from utilizing this type of plan.
by Steve Renner, QKA (New Philadelphia)