October 5, 2023 9:44 pm

HSA Updates for 2023 & 2024

As healthcare expenses rise and more companies move to High Deductible Healthcare Plans (HDHP), the Health Savings Account, or HSA, may be a great option for you and your family.  With the release of IRS Revenue Procedures 2022-24 and 2023-23, The HSA has become even more valuable.

What are the tax benefits of having an HSA?

A Health Savings Account allows an individual or family in a High Deductible Healthcare Plan to save for future medical expenses while claiming a tax deduction for contributions made to the plan.  The earnings on these contributions grow tax-free as long as the distributions taken are for qualified medical expenses. See IRS Publication 502 for a detailed list of these expenses.  Additionally, these contributions do not expire annually and can be rolled over from year-to-year for future medical expenses. Contributions can be made by the individual and deducted on their annual tax filing or made through an employer as a pre-tax payroll line item.  After age 65, an HSA works like a traditional IRA.  There are no penalties for withdrawing the money in the account for non-medical use and only ordinary income tax is paid on the distributions.  As such, an HSA can be leveraged, along with other retirement accounts, to achieve tax diversification in retirement.

What Healthcare Plans qualify?

A High Deductible Healthcare Plan (HDHP) must meet certain thresholds to be combined with an HSA. The health insurance plan’s annual deductible must be at least $1,500 for an individual and $3,000 for a family in 2023.  These numbers increase to $1,600 and $3,200 respectively for the 2024 calendar year.  The HDHP also has maximum out of pocket medical expenses that the plan must stay under each year to qualify.  These amounts are $7,500 for an individual and $15,000 for a family in 2023 and increases to $8,050 for an individual and $16,100 for a family in 2024.

What are the contribution limits? 

Contribution limits to an HSA have increased for 2023 and 2024 after the Internal Revenue Services’ adjustment for inflation.  The contribution limits for 2023 increased to $3,850 for an individual and $7,750 for a family in a High Deductible Healthcare Plan.  These limits will increase again in 2024 to $4,150 for individual coverage and $8,300 for insuring the family.  A $1,000 catch up contribution is available for participants 55 yrs and older for both years.

Is there a deadline to make a contribution?

Contributions to an HSA must be made by the tax filing deadline each year.  This date is not extended with an extension of time to file.

Sources:

IRS Publication 969          https://www.irs.gov/publications/p969

IRS Rev Proc. 2002-24     https://www.irs.gov/pub/irs-drop/rp-22-24.pdf

IRS Rev Proc. 2023-23     https://www.irs.gov/pub/irs-drop/rp-23-23.pdf

IRS Publication 502          https://www.irs.gov/pub/irs-pdf/p502.pdf

advertisement
Tax Glossary

Foreign earned income exclusion

In 2007, up to $85,700 of foreign earned income is exempt from tax if a foreign residence or physical presence test is met.

More terms