The IRS recently released a draft update of Publication 969 - Health Savings Accounts and Other Tax-Favored Health Plans, which provides valuable guidance for employers and employees regarding various health-related savings accounts and tax-advantaged plans. This publication covers Health Savings Accounts (HSAs), Flexible Spending Arrangements (FSAs), Health Reimbursement Arrangements (HRAs), and Medical Savings Accounts (MSAs), outlining how each account works, their tax benefits, and eligibility requirements.
Key Updates for 2025
While this is a draft, the publication includes information on 2025 contribution limits and important rules surrounding these accounts. For HSAs, the 2025 annual contribution limits have increased to $4,300 for self-only coverage and $8,550 for family coverage. Individuals 55 or older can contribute an additional $1,000 as a catch-up contribution. This is particularly important for HR professionals to communicate as employees may want to maximize contributions to benefit from tax savings.
New Clarifications
The updated publication also provides clarifications on the use of HSAs and HRAs alongside other coverage. It emphasizes that HSAs can only be used with high-deductible health plans (HDHPs), and having an HRA or FSA alongside an HSA may affect eligibility. For employees participating in multiple tax-favored plans, the publication details how contributions, eligible expenses, and plan interactions affect tax benefits.
Impact for Employers
Employers offering these benefits should take note of the draft updates, as they offer an opportunity to educate employees on maximizing their health savings. Since these accounts can lead to significant tax advantages, including reducing taxable income for both the employer and employee, understanding the specifics of Publication 969 is helpful.
In particular, employers may wish to highlight the list of eligible expenses for HSAs, FSAs, and HRAs. The publication reiterates that expenses for COVID-19 protective gear and certain over-the-counter medications are eligible without a prescription, which remains unchanged from recent updates.
Preparing for 2025
HR departments should review the updated Publication 969 and share the new limits and eligibility guidelines with employees as open enrollment approaches. By staying informed on the latest IRS guidance, employers can better assist employees in making informed decisions about their health savings and tax-advantaged options. The final version of the publication will confirm any draft changes and provide additional guidance for implementing these updates effectively.
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