The IRS recently released guidance providing the 2022 inflation-adjusted amounts for Health Savings Accounts.
Fundamentals of HSAs
What is a Health Savings Account (HSA)? It is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.”
- It can only be established for the benefit of an “eligible individual.”
- This person must be covered under a “high deductible health plan.”
- Additionally, a participant can’t be enrolled in Medicare or have other health coverage. Exceptions include dental, vision, long-term care, accident, and specific disease insurance.
So, what is a high deductible health plan (HDHP)? It is a plan with an annual deductible that isn’t less than $1,000 for self-only coverage and $2,000 for family coverage. In addition, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) can’t exceed $5,000 for self-only coverage and $10,000 for family coverage.
Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contribution to an HSA. This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for inflation.
Inflation adjustments for next year
In Revenue Procedure 2021-25, the IRS released the 2022 inflation-adjusted figures for contributions to HSAs, which are as follows:
- Annual contribution limitation. For the calendar year 2022, the annual contribution limitation for an individual with self-only coverage under an HDHP will be $3,650. For an individual with family coverage, the amount will be $7,300. This is up from $3,600 and $7,200, respectively, for 2021.
- High deductible health plan defined. For the calendar year 2022, an HDHP will be a health plan with an annual deductible that isn’t less than $1,400 for self-only coverage or $2,800 for family coverage (these amounts are unchanged from 2021). In addition, annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) won’t be able to exceed $7,050 for self-only coverage or $14,100 for family coverage (up from $7,000 and $14,000, respectively, for 2021).
There are a variety of benefits to HSAs. Contributions to the accounts are made on a pre-tax basis. The money can accumulate tax-free year after year and be can be withdrawn tax-free to pay for a variety of medical expenses including:
- Doctor visits,
- Chiropractic care,
- And premiums for long-term care insurance.
In addition, an HSA is portable. It stays with an account holder if he or she changes employers or leaves the workforce.
If you have questions about HSAs at your business, contact your team of CPAs at THF.