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A Health Savings Account (HSA) is a savings account for health care expenses and is used to supplement traditional retirement plans. Contributions are tax deductible the year they are made and withdrawals are tax-free when used for qualified medical expenses, like annual check-ups, going to the chiropractor, or some medication.
HSA limits are always announced in late April or May by the IRS for the following year. The contribution limits are based on the Consumer Price Index For All Urban Consumers which is based on the 12-month time period ending March 31.
So far, the inflation rate has risen to around 9%, which is the highest it's been since 1981. The cost of health insurance has taken a big jump as well. The inflation rate is currently expected to stay close to 9% the rest of 2022 then gradually ease down to 3% by the end of 2023.
The HSA contribution limits for 2023 are a much higher jump than in previous years; from $3,650 for self-only and $7,300 for families in 2022 to $3,850 for self-only and to $7,750 for families in 2023. This significant increase is due to the recent surge in inflation. Changes in HSA limits are good to know ahead of time for planning purposes. These adjustments represent around a 5.5% increase from 2022 – not quite the 9% inflation rates taxpayers are seeing, but still higher than most years. The chart below will help illustrate the increases.
| Tax Year | Individual | Family | Catch-Up Contributions for 55 and Over |
|---|---|---|---|
| 2023 | $3,850 | $7,750 | $1,000 |
| 2022 | $3,650 | $7,750 | $1,000 |
Eligibility requirements mandate that you must participate in a qualifying high deductible health plan. For 2022, the minimum deductible wasf $1,500 for individuals and $3,000 for families, with an out-of-pocket maximum amount of $7,500 for individuals and $15,000 for families.
In 2022, the minimum deductible was $1,400 for individuals and $2,800 for families, with an out-of-pocket maximum amount of $7,050 for individuals and $14,100 for families.
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Similar to IRAs and other retirement accounts, older taxpayers can make larger contributions to an HSA. Taxpayers who are over the age of 55 may contribute an additional $1,000 to their HSAs. This is often referred to as a “catch-up contribution.”
For married couples where both spouses are 55 or older with family coverage, they need to have two separate accounts: one in each name, for each of them to contribute an extra catch-up contribution of $1,000. They can do this until they reach 65 years old or until they enroll in Medicare.
If one spouse is 55 or older and there is a younger spouse that contributes the HSA limit in their name, the older spouse will need to open a separate account to make an additional catch-up contribution of $1,000.
However, there is a penalty for exceeding the contribution limit. The excess contribution amount is subject to a penalty fee of 6%. You can avoid the penalty if you withdraw the excess amount before the tax deadline for the given year.
Unlike the base amounts which are adjusted each for inflation, the catch-up amount is set by statute, therefore it cannot change.
Are you looking to use a Health Savings Account to reduce your taxes? Corvee tax planning software can help you quickly optimize your HSA contributions to maximize tax savings. In addition, it considers over 1,600 other tax planning strategies you may qualify for. Learn more about how you can reduce your taxes with Corvee and ensure your healthcare savings strategy is tax-advantaged. See how Corvee can help.
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