In response to inflation, the IRS significantly increases 2023 HSA contribution limits.
The Internal Revenue Service (IRS) recently announced its annual inflation-adjusted amounts for health savings accounts (HSAs) in 2023. And as inflation surged to its highest level in decades, the IRS made more significant adjustments than previous years' adjustments.
Wait, why does the IRS care about HSAs? Great question! Many HSA account holders elect to open HSAs because of their tax advantages. Here are three tax benefits provided by HSAs:
The IRS sets an annual limit for HSA contributions. After the contribution limit is reached, the account holder can no longer claim tax deductions for additional contributions. This contribution limit is adjusted annually for inflation.
The IRS significantly increased the 2023 contribution limits for both individuals and families.
These increased contribution limits will allow account holders to make larger tax deductions through their HSA. For comparison, the IRS adjustments in 2022 increased contribution limits for individuals and families by only 1.39%.
Note: Contribution limits include both employer + employee contributions. (If your employer contributes $400, that $400 counts towards your contribution limit total.)
To qualify for an HSA, individuals must be enrolled in a high deductible health plan (HDHP) as defined by the IRS. The IRS partly defines HDHP by the categories of minimum deductibles and out-of-pocket maximums. And the IRS also adjusted these definitions for 2023.
Similar to the contribution limit updates, the IRS increased minimum deductible and out-of-pocket maximums significantly. Individual and family minimum deductibles increased by 7.14%, and out-of-pocket maximums increased by 6.38%.
Not sure what those terms above mean? Here's a quick review.
Let's summarize. Individuals are responsible for all costs leading up to the deductible. After the deductible kicks in, both parties share payment responsibility through cost-sharing rules such as co-payment. And then, after annual health care expenses reach the out-of-pocket maximum, the health insurance plan is responsible for all remaining expenses.
Please remember that these adjusted amounts are for the calendar year of 2023. (Don't apply these amounts for your 2022 tax returns when you file them in 2023.)