Health Savings Account (HSA) contribution limits for 2020 will receive modest increases, the IRS announced May 28.
In Revenue Procedure 2019-25, the IRS confirmed that HSA annual contribution limits increase $50 to $3,550 for self-only coverage under a high deductible health plan, and by $100 to $7,100 for family coverage for 2020, which is roughly a 1.5% increase from 2019 contribution limits.
The HSA catch-up contribution limit (for people age 55 and older) remains unchanged for 2020 at $1,000.
While the catch-up contribution amount is fixed by statute, the contribution limits are adjusted for inflation (rounded to the nearest $50) annually, using the Consumer Price Index for All Urban Consumers for the 12-month period ending on March 31.
For calendar year 2020, the IRS defines a “high deductible health plan” under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,900 for self-only coverage or $13,800 for family coverage.
Employer HSA contributions aren’t treated as taxable income, but do count toward an employee’s annual contribution limit.
Knowing and conforming to HSA contribution limits is important, because if an employee with an HSA exceeds the IRS’ stated contribution limit for a given year and fails to remove the excess contributions prior to the last day to file a tax return, the IRS requires the employee to pay a 6% tax for each year that goes by.
The employee is also liable for taxes owed on the amount that should have been part of their gross taxable income rather than their tax-exempt HSA.
Average HSA contributions fall well short of IRS limits
According to Devenir Research’s 2018 Year-End HSA Market Survey, released earlier this year, the number of HSA accounts surpassed 25 million in 2018, and HSA account holders contributed almost $33.7 billion to their accounts during the year, up 22% from 2017.
The average employee contribution was $1,872 (among employees who made contributions), which was down from $1,921 in 2017.
The Devenir survey found the average employer contribution to employees’ accounts was $839 (among employers that made contributions), up from $604 in 2017.
Those averages—totaling $2,711—leave plenty of room for additional contributions before reaching the IRS’ 2020 limit.
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