The Internal Revenue Service released inflation-adjusted contribution limits for health savings accounts (HSA) for 2021.
As in previous years, both individuals and families will see a modest increase in the amount that they allowed to contribute.
For calendar year 2021, the annual limitation on deductions under §223(b)(2)(A) for an individual with coverage under a high deductible health plan is $3,600—up $50 from $3,550 in 2020.
Also, for calendar year 2021, the annual limitation on deductions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $7,200—and increase of $100 from $7,100 for 2020.
High deductible health plans
For calendar year 2021, the IRS defines a “high deductible health plan” as a health plan with an annual deductible that is not less than $1,400 for individual coverage or $2,800 for family coverage.
The annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) must not exceed $7,000 for self-only coverage or $14,000 for family coverage.
Employer HSA contributions aren’t treated as taxable income but do count toward an employee’s annual contribution limit.
COVID-19 testing and treatment
As a reminder, COVID-19 testing and treatment are now considered qualifying expenses for HSAs, the IRS said in March.
To facilitate the nation’s response to the Coronavirus (COVID-19) pandemic, the guidance provides that, “a health plan that otherwise satisfies the requirements to be a high deductible health plan (HDHP) under section 223(c)(2)(A) of the Internal Revenue Code (Code) will not fail to be an HDHP under section 223(c)(2)(A) merely because the health plan provides health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP.”
Therefore, an individual covered by the HDHP will not be disqualified from being an eligible individual who may make tax-favored contributions to an HSA.