The IRS has announced more cost-of-living adjustments – these focus on changes affecting health savings accounts (HSAs), high-deductible health plans (HDHPs) and health reimbursement arrangements (HRAs).
Details can be found in Revenue Procedure 2023-23. Here is the summary.
For calendar year 2024, the annual HSA contribution limit for taxpayers with only the high deductible for their own coverage under a health plan is $4,150 (up from $3,850 in 2023). The annual HSA contribution limit for taxpayers with family coverage under a high-deductible health plan is $8,300 (up from $7,750 in 2023).
HSA catch-up contributions (for taxpayers age 55 and older) have not changed because they are not subject to cost-of-living adjustments. $1,000 remains.
A high-deductible health plan is a health plan with an annual deductible of at least $1,600 for self-only coverage or $3,200 for family coverage. Annual out-of-pocket costs—deductibles, copayments and other amounts—for these plans cannot exceed $8,050 for self-only coverage or $16,100 for family coverage.
The annual contribution limit for the exempt HRA benefit is $2,100 ($1,950 in 2023).
These new limits are effective through the 2024 calendar year.
What does this alphabet soup mean? Here is a quick overview.
Under Section 223 of the Internal Revenue Code, eligible individuals may contribute to an HSA. You must be covered by an HDHP and not have disqualifying health coverage to qualify. And HDHPs must meet annual limits—here’s what the IRS updates each year and what you’ll find in Rev. In Proc. 2023-23
You can make tax-deductible contributions to your HSA on your own, and your employer can decide to contribute the funds. Employer contributions are not considered income for tax purposes. No matter who makes the contributions, the funds in the HSA will grow from federal income tax.
And when will you remove them? Distributions of qualified medical expenses, including dental and vision expenses, are not taxable for federal income tax purposes. Qualifying medical expenses include treatment for a diagnosed disease or condition and must be prescribed by your doctor. Medical expenses include visits for routine medical, dental and vision care, specialist care and treatment, including medications and follow-up visits. Medical expenses may also include incidental expenses such as mileage. Medical expenses eligible for the medical and dental expense deduction are generally the same as those allowed for HSA purposes.
There are limitations. An HDHP can provide benefits only after the minimum deductible is met. In other words, you must meet your deductible (out-of-pocket expenses) before your HDHP benefits begin.
Exception Benefits HRAs are offered over a traditional group health plan and allow employers to help cover the cost of additional medical services, such as vision or dental coverage, coinsurance and copayments, and other costs not covered by insurance. And like other HRA plans, it’s not ‘use it or lose it’ – unused funds roll over from year to year. These limits are adjusted annually for inflation as noted above.