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IRS raises HSA levels for inflation

May 19Jeff Matthews
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In Rev. Proc 2015-30, released earlier this month, the service adjusted deductions for annual Health Savings Accounts (HSA) for 2016.

“For calendar year 2016, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,300 for self-only coverage or $2,600 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,550 for self-only coverage or $13,100 for family coverage. “[i]  So plans must raise the annual deductible in 2016 but must also cap annual out-of-pocket costs.

Under § 223(b)(2)(A) with self-only coverage under a high deductible plan individuals will be allowed to contribute $3,350 (consistent with 2015), while an individual with family coverage will be allowed to contribute $6,750 (up $100 over 2015).

The result is that while employees can contribute more to their HSA accounts in 2016, the plans are required to raise the minimum annual deductible by $100 from $2,500 to $2,600.  But the out-of-pocket maximum costs to the employee are considerably higher than the tax-exempt current contribution limits into an HSA ($6,550 vs. $ 3,350).  Employees whose medical spending exceeds the balance in their HSA must pay the remaining expenses from after-tax funds.  Medical expenses paid with after tax dollars over 10% of adjusted gross income are deductible as itemized expenses assuming the employee has sufficient expenses to itemize on their tax return.   Pre-ACA expenses above 7% could be an itemized deduction.

[i] Rev Proc 2015-30, Internal Revenue Service, http://www.irs.gov/pub/irs-drop/rp-15-30.pdf

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