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 The money accumulates year after year tax free, and can be withdrawn tax free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care, and premiums for long-term-care insurance.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.
Below are 2018 limits for individual and family coverage, which were announced by the IRS in Revenue Procedure 2017-37. 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 2018 annual HSA contribution limit for individuals with self-only HDHP coverage is $3,450 (up from $3,400 for 2017), and the limit for individuals with family HDHP coverage is $6,900 (up from $6,750 for 2017).
High-Deductible Health Plan (HDHP) Minimum Required Deductibles. The 2018 minimum annual deductible for self-only HDHP coverage is $1,350 (up from $1,300 for 2017) and the minimum annual deductible for family HDHP coverage is $2,700 (up from $2,600 for 2017).
HDHP Out-of-Pocket Maximums. The 2018 maximum limit on out-of-pocket expenses (including items such as deductibles, co-payments and other amounts, but not premiums) for self-only HDHP coverage is $6,650 (up from $6,550 for 2017), and the limit for family HDHP coverage is $13,300 (up from $13,100 for 2017).
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 do not 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 another person’s tax return.
For more information about HSAs, contact your employee benefits and tax advisors.