A health savings accounts (HSA) is a tax-favored account that individuals enrolled in a high deductible health plan can use to save for medical expenses not covered by their health plan. Employers may fund an HSA and/or employees may contribute to an HSA, depending on plan structure. The employee, as account holder, may use the funds in the HSA to pay for eligible medical expenses. Amounts may be taken from the account for non-medical expenses, subject to tax penalty.
The contribution limits to health savings accounts were adjusted for cost of living for 2018. The individual contribution limit was set at $3,450 and the family limit was set at $6,900. In March, the IRS reduced the contribution limit to HSAs for individuals enrolled in family coverage under their high deductible health plan. The limit was adjusted from $6,900 to $6,800 due to a change in the inflation adjustment rate set forth in the Tax Cuts and Jobs Act.
After announcing the contribution limit reduction, the IRS recognized that individuals and employers would encounter difficulties in administering a mid-year downward adjustment. Therefore, the IRS announced that it has restored the deduction limit for HSA contributions for family coverage back to $6,900 for 2018.
In addition to the reinstatement of the HSA family contribution limit, the IRS has also announced the cost of living adjustments to the annual limitations for 2019.
For calendar year 2019, the annual contribution limitation for an individual with self-only coverage under a high deductible health plan is increased to $3,500 and the annual contribution limitation for an individual with family coverage under a high deductible health plan is increased to $7,000.
For calendar year 2019, a “high deductible health plan” is defined one with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,750 for self-only coverage or $13,500 for family coverage.
Employers should make note of the contribution limits when administering their HSAs.
