With Health Savings Accounts (HSAs), individuals and businesses buy less expensive health insurance policies with high deductibles. 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 The money can accumulate year after year tax free, and be withdrawn tax free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term-care insurance.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.
Here are the 2016 limits for individual and family coverage, which were announced by the IRS in Revenue Procedure 2015-30. They are determined after the IRS applies 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).
The Benefits of an HSA
- 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.
- 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.
Qualifying for an HSA
To be an eligible individual and qualify for an HSA, you must meet the following requirements:
- You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month.
- 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.)
- You are not enrolled in Medicare.
- You cannot be claimed as a dependent on someone else’s tax return.
Source: The IRS
BASIC’s HSA Administration
To learn more about the advantages of BASIC’s HSA Administration, click here!