24 May IRS Adjusts Health Savings Account Limits for 2022
As it does each year, the IRS has announced changes for health savings accounts (HSAs), which are associated with high-deductible health plans.
HSAs Explained
As explained by the IRS, “A Health Savings Account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur.” In other words, the HSA was designed to pay for day-to-day medical costs that an individual or family member may incur while remaining tax-free.
The account is owned by the employee and money is deposited directly into the individual’s account. Employees may make contributions in the form of lump-sum contributions or pre-tax payroll deductions. An employer may also contribute to the account.
As soon as funds accumulate, they are available. This differs from a health flexible spending account (FSA) that has uniform coverage, in which the full balance is available on the first day of the plan year.
HSA Benefits
There are plenty of benefits you may enjoy by having an HSA:
- Post-tax contributions to your HSA made by you or someone other than your employer are tax-deductible “even if you don’t itemize your deductions on Schedule A (Form 1040).”
- Your employer’s contributions to your HSA (including cafeteria plan contributions) can be excluded from your gross income.
- The contributions are kept in the account until they are used.
- You don’t have to pay taxes on the interest you receive in an HSA.
- You may make tax-free withdrawals for qualified medical expenses.
- An HSA is referred to as “portable,” meaning it follows you even if you move jobs or leave the workforce.
Additionally, HSAs can pay for non-medical expenses, however, these distributions will be subject to income tax. If the account holder is under age 65, the distribution will also be subject to an additional 20% excise tax.
The figures for 2022:
- Self-only: $3,650 (a $50 increase from 2021).
- Family: $7,300 (a $100 increase from 2021).
According to the Society for Human Resource Management, the government bases its decision on the Consumer Price Index for All Urban Consumers for the 12-month period ending on March 31.
The IRS has made a similar adjustment to maximum out-of-pocket amounts:
- Self-only: $7,050 (a $50 increase from 2021).
- Family: $14,100 (a $100 increase from 2021).
The catch-up contribution amount for those 55 and older is not automatically adjusted and remains at $1,000.
Also remaining the same are minimum deductibles:
- Self-only: $1,400.
- Family: $2,800.
More information is available in IRS Rev. Proc. 2021-25. Remember, HSA contributions may be made through pre-tax salary reductions and/or on a post-tax basis, up to the maximum limit for that year. Post-tax contributions may be made up until the date an individual’s taxes are due.
This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.