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Health Savings Accounts (HSAs) amounts have been recently released by the IRS and adjusted for inflation for 2021.
What are the basics for HSAs?
An HSA is a trust created or organized exclusively to pay the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high deductible health plan.” Also, 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).
In general, a high deductible health plan (HDHP) is a plan that has an annual deductible that isn’t less than $1,000 for self-only coverage and $2,000 for family coverage. Also, the sum of the annual deductible and other yearly out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) cannot 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.
What are the inflation adjustments for 2021 contributions?
In Revenue Procedure 2020-32, the IRS released the 2021 inflation-adjusted figures for contributions to HSAs, which are as follows:
Annual contribution limitation. For calendar year 2021, the annual contribution limitation for an individual with self-only coverage under a HDHP is $3,600. For an individual with family coverage, the amount is $7,200. This is up from $3,550 and $7,100, respectively, for 2020.
High deductible health plan defined. For the calendar year 2021, an HDHP is 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 2020). In addition, annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) can’t exceed $7,000 for self-only coverage or $14,000 for family coverage (up from $6,900 and $13,800, respectively, for 2020).
What are the benefits of HSAs?
There are many advantages to HSAs. Contributions to the accounts are made on a pre-tax basis. The money can accumulate year after year tax-free and be withdrawn tax-free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care, and premiums for long-term-care insurance. Also, 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 the information outlined above or need assistance, JLK Rosenberger can help. For additional information, call us at 949-860-9893 or click here to contact us. We look forward to speaking with you soon.