The IRS has announced more cost-of-living adjustments—these focus on changes affecting health savings accounts (HSAs), high-deductible health plans (HDHPs), and health reimbursement arrangements (HRAs)
The details can be found in Revenue Procedure 2023-23. Here’s a summary.
HSA
For calendar year 2024, the annual HSA contribution limit for taxpayers with self-only coverage under a high-deductible health plan is $4,150 (up from $3,850 in 2023). The annual HSA contribution limitation for taxpayers with family coverage under a high-deductible health plan is $8,300 (up from $7,750 in 2023).
The HSA catch-up contribution (for those taxpayers ages 55 and older) did not change as it’s not subject to cost-of-living adjustments. It remains $1,000.
HDHP
A high-deductible health plan is a health plan with an annual deductible of at least $1,600 for self-only coverage or $3,200 for family coverage. The yearly out-of-pocket expenses—deductibles, copayments, and other amounts—for those plans cannot exceed $8,050 for self-only coverage or $16,100 for family coverage.
HRA
The annual contribution limit for an excepted benefit HRA is $2,100 (up from $1,950 in 2023).
Effective Date
These new limits are effective for the 2024 calendar year.
Definitions
What does all of this alphabet soup mean? Here’s a quick rundown.
Under section 223 of the Tax Code, eligible individuals can contribute to an HSA. You must be covered under an HDHP and have no disqualifying health coverage to qualify. And HDHP has to meet annual limits—that’s what the IRS updates each year and what you’ll find in Rev. Proc. 2023-23.
You can make pre-tax contributions to your HSA independently, and your employer may opt to kick in funds. Employer contributions are not considered income for tax purposes. No matter who makes the contributions, funds in an HSA will grow federal income tax-free.
And when you take them out? Distributions for qualified medical expenses, including dental and vision expenses, are not taxable for federal income tax purposes. Qualifying medical expenses include treatment for a diagnosed disease or condition and must be ordered by your doctor. Medical expenses include visits for routine medical, dental, and vision care, specialist care, and treatments, including medications and follow-up visits. Medical expenses may also include associated out-of-pocket costs, like mileage. Medical expenses that qualify for the medical and dental expenses deduction are typically the same as those eligible for HSA purposes.
There are restrictions. An HDHP may only provide benefits once the minimum deductible is satisfied. In other words, you must meet your deductible (out-of-pocket costs) before your HDHP benefits kick in. However, if you combine your HDHP with an HSA, you can pay those qualifying medical expenses using funds in your HSA.
An excepted benefit HRA is offered with a traditional group health plan and allows employers to assist with costs for additional medical care, like vision or dental coverage, coinsurance and copayments, and other costs not covered by insurance. And like other HRA plans, there’s no “use it or lose it”—the unused amounts roll over from year to year. Those limits are adjusted each year for inflation, as noted above.