The IRS has announced an increase to the health savings account (HSA) contribution limits for both single coverage and family coverage for 2019 along with changes to the out-of-pocket expenses for HSA-qualifying high deductible health plans (HDHPs).
Here’s what you should know:
2019 HSA Contribution Limit Changes
The 2019 HSA contribution level maximum will be $3,500 for individual coverage, and $7,000 for family coverage. The new limits increase the pre-tax amounts individuals and families may contribute to their HSA over 2018 limits by $50 and $100, respectively.
Individuals age 55 or older not yet enrolled in Medicare may make a catch-up HSA contribution of up to $1,000 per person – an amount that remains unchanged from last year’s catch-up limit.
This means that the maximum contribution limit for an health savings account in the 2019 tax year will be $8,000.
HSA Contribution Changes Over Time:
|55+ Catch-Up Contribution||$1,000||$1,000||$1,000||$1,000|
This most recent limit adjustment fits the traditional pattern of previous years, with the IRS announcing HSA limits in early May for the following tax year and generally leaving those limits unchanged throughout the tax year.
Early this year, however, that pattern was interrupted when the IRS announced that it had reduced the 2018 maximum family contribution limit to an HSA from $6,900 to $6,850. (Individual contribution limits weren’t impacted at the time.)
That unprecedented event was a result of a provision in H.R. 1 (“Tax Reform”) that changed the way that inflation-related increases are calculated from the “Consumer Price Index” (CPI) to a new factor known as “chained CPI.”
Then on April 26, 2018, the IRS issued transition relief on April 26, 2018 allowing taxpayers to treat the 2018 Health Savings Account (HSA) contribution limit for an individual with family coverage under a High Deductible Health Plan (HDHP) as $6,900.
HDHP Deductibles and Out-of-Pocket Maximums
The minimum deductible for HSA-qualified HDHPs were left as-is for 2019, remaining to $1,350 for individual coverage and $2,700 for family coverage.
However, the 2019 out-of-pocket maximums for HDHPs were increased to $6,750 for individual coverage and $13,500 for family coverage, increases of $100 for individual and $200 for families from the 2018 limit, respectively.
The increases for HDHP out-of-pocket maximums allow plan sponsors more flexibility when determining potential deductibles. They also factor into the decision-making process for account holders when determining how much to contribute to their HSA.
HSA Single Coverage Changes Over Time:
|HSA Contribution Limit||$3,350||$3,400||$3,450||$3,500|
|55+ Catch-Up Contribution||$1,000||$1,000||$1,000||$1,000|
|Minimum HDHP Deductible||$1,300||$1,300||$1,350||$1,350|
|Maximum HDHP Out-of-Pocket||$6,550||$6,550||$6,650||$6,750|
HSA Family Coverage Changes Over Time:
|HSA Contribution Limit||$6,750||$6,750||$6,900||$7,000|
|55+ Catch-Up Contribution||$1000||$1000||$1,000||$1,000|
|Minimum HDHP Deductible||$2,600||$2,600||$2,700||$2,700|
|Maximum HDHP Out-of-Pocket||$13,100||$13,100||$13,300||$13,500|
HSA Contribution Trends
According to the 2017 Year-End Devenir HSA Market Research Report, Devenir projects that the HSA market will exceed $64 billion in HSA assets by the end of 2019, held amongst roughly 27.5 million accounts.
The research firm also estimated that $27.6 million was contributed in 2017, up from $25.5 million in 2016. Employer contributions represented 21% of that 2017 contribution tally, while 63% of all HSA dollars contributed that year came from an employee with employer-associated HSA. For this latter group, the average employee contribution was $1,921.
The final 14% of HSA contributions were made by individuals with an account not associated with an employer (HSAs established/maintained on a direct-to-consumer market).
Employees’ concerns over covering health care costs is retirement is likely driving some of these contribution decisions, as the ConnectYourCare CDH Account Trends 2018 Report found that 68.7% of HSA account holders surveyed were more concerned with covering health care expenses in retirement than with lifestyle or other retirement expenses.
“We’re increasingly seeing HSAs function as a critical resource for Americans to fund their care today, tomorrow, and in retirement,” noted Harrison Stone, General Counsel, ConnectYourCare. “In fact, our research shows that 45% of account holders elect an HSA because of the long-term benefits, over more immediate benefits like tax savings and lower premiums. Annual contribution limit increases allow these accounts to maintain their value and cement their role as a key retirement planning building block.”
How HSA Contributions Work
There’s a lot for HSA participants and potential participants to know about contributing to an HSA and the topic warrants a blog post all on its own (which sounds like a great idea to me, so sign up for our blog newsletter to make sure you don’t miss that follow up post).
However, the very basics are that an individual with an HDHP, an employer, a spouse, a parent, and other loved ones can contribute to that individual’s HSA – and every qualifying contribution is tax free.
Contributions are often made via pre-tax deposits through payroll deductions, but you can also make one-time or recurring after-tax contributions from “take home” pay and take an above-the-line tax deduction for those. Either way, your qualifying contributions reduce your taxable income.
While the amount contributed by your employer and loved ones isn’t regarded as income for you and isn’t taxable, it does count toward your annual contribution limit.
The IRS also allows a one-time transfer of IRA funds to an HSA, but that transfer combined with all other HSA contributions made for that year cannot exceed the yearly maximums.
If for some reason you exceed your HSA contribution limit for a given year and fail to remove the excess contributions prior to the last day to file a tax return, the IRS will require you to pay a 6% tax for each year that goes by and you are liable for taxes owed on the amount that should have been part of your gross taxable income rather than your tax-exempt HSA.
That’s why it’s so important to be aware of the HSA contribution limits impacting you for a given year. For answers to some common HSA questions, make sure you check out our Health Savings Account FAQs page.