July 5, 2023
According to the IRS, the Health Savings Account (HSA) contribution limit for individuals in 2023 is $3,850, up from $3,650 in 2022. For those with family coverage, the HSA contribution limit has risen to $7,750. These limits apply to individuals under the age of 55. For individuals aged 55 and older, an additional catch-up contribution of $1,000 is allowed, which remains unchanged from 2022.
It's important to note that these contribution limits include both employer and employee contributions, meaning that the combined amount cannot exceed the specified limits. However, it's worth mentioning that some employers may choose to set lower contribution limits, so it's advisable to check with your employer to determine any limitations they may have in place.
Furthermore, HSAs must be paired with a high deductible health plan (HDHP). HDHPs typically have lower monthly premiums but higher deductibles compared to traditional health insurance plans.
What can HSA funds be used for?
HSA funds can be used for a variety of qualified medical expenses. The IRS provides guidelines on what expenses are considered eligible for HSA withdrawals. Here are some common categories of expenses that can be paid for using HSA funds:
- Doctor's visits: HSA funds can be used to cover expenses related to office visits, consultations, and specialist fees.
- Prescription medications: Prescription drugs, including both generic and brand-name medications, are typically eligible for HSA reimbursement.
- Medical procedures: HSA funds can be used for various medical procedures such as surgeries, X-rays, laboratory tests, and diagnostic procedures.
- Dental care: Expenses related to dental treatments, including preventive care (cleanings, X-rays), fillings, orthodontics, dentures, and dental surgery, can be paid for using HSA funds.
- Vision care: HSA funds can cover vision-related expenses such as eye exams, prescription eyeglasses or contact lenses, and certain vision surgeries like LASIK.
- Mental health services: Qualified mental health services, including therapy sessions, counseling, and psychiatric treatment, are eligible for HSA reimbursement.
- Physical therapy: HSA funds can be used for rehabilitation services, physical therapy sessions, and other related treatments.
- Health insurance premiums: In some cases, HSA funds can be used to pay for health insurance premiums, including COBRA coverage, long-term care insurance premiums, or health coverage while receiving unemployment benefits. However, there are certain restrictions, so it's important to check with the IRS guidelines and your specific HSA provider.
It's important to note that expenses must be incurred by the account holder, their spouse, or their dependents to be eligible for HSA reimbursement. Additionally, it's advisable to keep proper documentation of expenses (such as receipts and invoices) in case of an audit.
HSAs offer a twofold tax benefit: contributions are tax-deductible, reducing taxable income, and withdrawals for qualified medical expenses are tax-free. These plans provide an attractive avenue for individuals to proactively save for healthcare costs while enjoying tax advantages, especially in light of the changing landscape of medical expense deductions under the higher standard deduction for individual taxpayers.
The HSA contributions offer individuals and families an opportunity to save for healthcare expenses in a tax-advantaged manner. The slight increases in the contribution limits for 2023 reflect a recognition of rising healthcare costs. While the future of HSA rates is uncertain, trends such as inflation adjustments, legislative changes, rising healthcare costs, and the focus on consumer-driven healthcare will likely shape the landscape. It's always recommended to consult the IRS guidelines or speak with a tax advisor for specific information regarding eligible expenses under the HSA program, as rules and regulations may vary or change over time.