Health Savings Accounts (HSAs) allow individuals and businesses to buy less expensive health insurance policies with high deductibles, and contributions to the accounts are made on a pre-tax basis. The money can accumulate year after year tax free, and be withdrawn tax free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term-care insurance.
Participating employers can also contribute to accounts, on behalf of their employees.
The IRS announced the 2016 limits for individual and family coverage in Revenue Procedure 2015-30. The IRS determines the rates after they apply cost-of-living adjustment rules, and the changes in the Consumer Price Index for the relevant period.
- HSA Contribution Limits.The 2016 annual HSA contribution limit for individuals with self-only HDHP coverage is $3,350 (unchanged from 2015), and the limit for individuals with family HDHP coverage is $6,750 (a $100 increase from 2015).
- High-Deductible Health Plan (HDHP) Minimum Required Deductibles.The 2016 minimum annual deductible for self-only HDHP coverage is $1,300 (unchanged from 2015) and the minimum annual deductible for family HDHP coverage is $2,600 (unchanged from 2015).
- HDHP Out-of-Pocket Maximums.The 2016 maximum limit on out-of-pocket expenses (including items such as deductibles, copayments, and coinsurance, but not premiums) for self-only HDHP coverage is $6,550 (a $100 increase from 2015), and the limit for family HDHP coverage is $13,100 (a $200 increase from 2015).
What are the Benefits of an HSA?
According to the IRS, an HSA supplies the following benefits:
- The contributions remain in your account until you use them.
- The interest or other earnings on the assets in the account are tax free.
- Distributions may be tax free if you pay qualified medical expenses.
- An HSA is “portable.” It stays with you if you change employers or leave the work force.
- You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you don’t itemize your deductions on Form 1040.
- Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
Qualifying for an HSA
To be an eligible individual and qualify for an HSA, you must meet the following requirements:
- You are not enrolled in Medicare.
- You cannot be claimed as a depended on someone else’s tax return.
- You are covered under a high deductible health plan (HDHP).
- You generally have no other health coverage except what is permitted under regulations. Exceptions include: dental, vision, long-term care, accident and specific disease insurance).
For more information about HSAs, contact your employee benefits and tax adviser.