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Internal Revenue Code (IRC) Section 223 allows individuals who are covered by a compatible health plan, often referred to as a High Deductible Health Plan (HDHP), to set aside funds on a tax-free basis up to the contribution limit to pay for certain out-of-pocket medical expenses. Health Savings Accounts have a triple tax benefit—funds go into the account tax-free, funds grow tax-free, and remain completely tax-free when used for eligible medical expenses.
Here are some other unique aspects of HSAs as defined in IRC Section 223:
Contributions can be made by you, your employer, or a third party (e.g. family member or friend). Contributions can either be made on a tax-free basis through a Section 125 Plan or directly into the account on a tax-deductible basis. The IRS sets the maximum annual contribution limit. Generally, HSA contributions do not have to be prorated; however, certain exceptions and conditions apply. Contributions can be made at any time up until the tax filing deadline, typically April 15.
|IRS Contribution Limits||Single Coverage||Family Coverage|
|Contribution Limit (2022)||$ 3,650||$ 7,300|
|Contribution Limit (2021)||$ 3,600||$ 7,200|
|Contribution Limit (2020)||$ 3,550||$ 7,100|
|Additional Catch-up Contribution|
(for those 55 and older)
|$ 1,000||$ 1,000|
|IRS HDHP Limits||Single Coverage||Family Coverage|
|HDHP Minimum deductible (2022)||$ 1,400||$ 2,800|
|HDHP Maximum out-of-pocket (2022)||$ 7,050||$ 14,100|
|HDHP Minimum deductible (2021)||$ 1,400||$ 2,800|
|HDHP Maximum out-of-pocket (2021)||$ 7,000||$ 14,000|
|HDHP Minimum deductible (2020)||$ 1,400||$ 2,800|
|HDHP Maximum out-of-pocket (2020)||$ 6,900||$ 13,800|
2. You cannot be covered by any non-qualified health plan as it constitutes ineligible coverage. Examples of ineligible coverage include:
3. You cannot be enrolled in Medicare.
4. You cannot be claimed as a dependent on another person’s tax return.
You will also receive a number of ongoing communications. These include:
When it comes to employee benefits, communication is key. However, many employers still make common communication mistakes that can have a negative impact on how