Unlock the potential of your Health Savings Account (HSA) in 2024 with a comprehensive understanding of the contribution limits. Learn how to maximize savings and tax benefits with the latest HSA limits.
.png)
In 2024, the IRS has announced notable increases in the maximum Health Savings Account (HSA) contribution limits. For individuals, the new limit is $4,150, marking a 7.8% rise from the previous year's maximum of $3,850. Families will see their limit increase to $8,300, up by 7.1% from $7,750 in 2023. Moreover, those aged 55 and older can still contribute an additional $1,000 to their HSAs, with this provision remaining unchanged for 2024. These updates offer eligible individuals the opportunity to save more tax-free funds for medical expenses through their HSAs.
In 2023, the Health Savings Account (HSA) contribution limits stand at $3,850 for individuals and $7,750 for families. Individuals aged 55 and older have the option to make a catch-up contribution of up to $1,000. Typically, contributors have until the tax filing deadline to make HSA contributions. For instance, for the tax year 2023, contributions can be made until April 15, 2024. This extended timeline provides flexibility for individuals to maximize their HSA contributions and potential tax benefits.
For 2024, Health Savings Account (HSA) contribution limits have been raised. Individuals can now contribute up to $4,150, while families have a limit of $8,300. Individuals aged 55 and above can make an additional catch-up contribution of $1,000. These adjustments provide increased opportunities for individuals and families to save for medical expenses with tax advantages.
In 2024, high-deductible health plans (HDHPs) are required to have a minimum deductible of $1,600 for individuals and $3,200 for families. Additionally, the maximum annual out-of-pocket expenses, which include deductibles, co-payments, and other similar costs but not premiums, cannot surpass $8,050 for single coverage or $16,100 for family coverage. These stipulations set by the IRS ensure that HDHPs maintain certain financial thresholds, offering individuals and families clarity on their healthcare expenses.
Related: Who Qualifies for a HSA Deduction?
If you're not enrolled in an HSA-eligible health insurance plan for the entire year, your contributions to an HSA may be restricted. However, if you're still covered by an eligible plan on December 1 of a given year, you should be able to contribute the maximum allowable amount for that year to your HSA.
In cases where you weren't covered by an HSA-eligible health insurance plan for the full year, you can calculate your prorated contribution by determining the number of months you were enrolled in a high-deductible health plan (HDHP) on the first day of each month and dividing that by 12. Then, multiply this fraction by the total contribution limit for the year to find your adjusted contribution limit.
If you're enrolled in a high-deductible health plan (HDHP) on December 1 of a given year, you're eligible to contribute the maximum amount to your Health Savings Account (HSA) for that year under the IRS "last-month rule." This rule applies regardless of whether you've been enrolled in an HSA-eligible health plan for just one day or the entire year. However, there's an important condition attached to the last-month rule.
To comply with the last-month rule, you must remain enrolled in an HDHP for a testing period of one year, spanning from December 1 of the contribution year to December 31 of the following year. If you cease to be enrolled in an HSA-eligible HDHP during that period, you'll be required to pay income taxes along with a 10% penalty on any excess contributions when filing your tax return.
There are multiple compelling reasons to make the maximum contribution to a Health Savings Account (HSA) each year. Here are the top three reasons why we advise individuals to maximize their HSA contributions annually.
If you anticipate significant medical expenses in a particular year, maximizing your HSA contributions allows you to cover at least a portion of these costs with pre-tax funds, offering financial relief.
Contributing to an HSA provides the benefit of deductions from your taxable income. By maximizing your HSA contributions, you can effectively reduce your annual tax liability as part of an overall tax-minimization strategy.
Treating your HSA as an additional retirement account becomes advantageous, especially if you're already maximizing contributions to your 401(k). By investing your HSA funds, you can accumulate substantial tax-free savings for medical expenses in retirement. Moreover, you have the option to retain receipts and reimburse yourself for medical expenditures later, leveraging the built-up HSA balance to cover future healthcare costs.
Employer contributions to your Health Savings Account (HSA) may impact your overall contribution limits. These contributions can come in the form of a set amount per employee or matching contributions. The IRS imposes annual limits on total contributions to an HSA, combining both employer and employee contributions. In essence, if your HSA receives contributions from both you and your employer, the total contributions cannot exceed the annual limit set by the IRS. While employer contributions lessen the amount you, as the employee, can contribute, they ultimately augment your HSA balance, which is beneficial.
Employer contributions to an employee's HSA are not considered part of the employee's income and are thus exempt from federal income tax, Social Security, and Medicare taxes. Additionally, these contributions are deductible as a business expense for the employer, providing a tax benefit to the company.
Being audited is comparable to being struck by lightning. You don't want to practice pole vaulting in a thunderstorm just because it's unlikely. Making sure your books are accurate and your taxes are filed on time is one of the best ways to keep your head down during tax season. Check out Vincere's take on tax season!
This post is just for informational purposes and is not meant to be legal, business, or tax advice. Regarding the matters discussed in this post, each individual should consult his or her own attorney, business advisor, or tax advisor. Vincere accepts no responsibility for actions taken in reliance on the information contained in this document.
For business tax planning articles, our tax resources provides valuable insights into how you can reduce your tax liability now, and in the future.
