Health Savings Account Limits for 2016
February 8, 2016 | Deductions, IRS Regulation, Tax Planning, Tax Preparation
Health Savings Accounts (HSAs) allow individuals and businesses to buy less expensive health insurance policies with high deductibles, and 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 The money can accumulate year after year tax free, and be withdrawn tax free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term-care insurance.
Participating employers can also contribute to accounts, on behalf of their employees.
The IRS announced the 2016 limits for individual and family coverage in Revenue Procedure 2015-30. The IRS determines the rates after they apply cost-of-living adjustment rules, and the changes in the Consumer Price Index for the relevant period.
- HSA Contribution Limits.The 2016 annual HSA contribution limit for individuals with self-only HDHP coverage is $3,350 (unchanged from 2015), and the limit for individuals with family HDHP coverage is $6,750 (a $100 increase from 2015).
- High-Deductible Health Plan (HDHP) Minimum Required Deductibles.The 2016 minimum annual deductible for self-only HDHP coverage is $1,300 (unchanged from 2015) and the minimum annual deductible for family HDHP coverage is $2,600 (unchanged from 2015).
- HDHP Out-of-Pocket Maximums.The 2016 maximum limit on out-of-pocket expenses (including items such as deductibles, copayments, and coinsurance, but not premiums) for self-only HDHP coverage is $6,550 (a $100 increase from 2015), and the limit for family HDHP coverage is $13,100 (a $200 increase from 2015).
What are the Benefits of an HSA?
According to the IRS, an HSA supplies the following benefits:
- The contributions remain in your account until you use them.
- The interest or other earnings on the assets in the account are tax free.
- Distributions may be tax free if you pay qualified medical expenses.
- An HSA is “portable.” It stays with you if you change employers or leave the work force.
- You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you don’t itemize your deductions on Form 1040.
- Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
Qualifying for an HSA
To be an eligible individual and qualify for an HSA, you must meet the following requirements:
- You are not enrolled in Medicare.
- You cannot be claimed as a depended on someone else’s tax return.
- You are covered under a high deductible health plan (HDHP).
- You generally have no other health coverage except what is permitted under regulations. Exceptions include: dental, vision, long-term care, accident and specific disease insurance).
For more information about HSAs, contact your employee benefits and tax adviser.