The Internal Revenue Service announced higher limits for 2014 on contributions to Health Savings Accounts (HSAs) and for out-of-pocket spending under high-deductible health plans (HDHPs) linked to them.
In Revenue Procedure 2013-25, issued May 2, 2013, the IRS provided the inflation-adjusted HSA contribution and HDHP minimum deductible and out-of-pocket limits, effective for calendar year 2014. The higher rates reflect a cost-of-living adjustment and rounding rules under Internal Revenue Code Section 223.
A comparison of the 2016 and 2015 limits is shown below:
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Contribution and Out-of-Pocket Limits for Health Savings Accounts and for High-Deductible Health Plans |
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For 2016 |
For 2015 |
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Family: |
Family: |
no change Family: |
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HDHP minimum deductibles |
Individual: Family: |
Individual: Family: |
No change |
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ACA out-of-pocket limits for HDHPs |
Family: |
Family: |
Family: |
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** Unlike other limits, the HSA catch-up contribution amount is not indexed; any increase would require statutory change. |
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Penalties for Nonqualified Expenses
Those under age 65 (unless totally and permanently disabled) who use HSA funds for nonqualified medical expenses face a penalty of 20 percent of the funds used for such expenses. Funds spent for nonqualified purposes are also subject to income tax.
Coverage of Adult Children
While the Patient Protection and Affordable Care Act allows parents to add their adult children (up to age 26) to their health plans, the IRS has not changed its definition of a dependent for health savings accounts. This means that an employee whose 24-year-old child is covered on his HSA-qualified high-deductible health plan is not eligible to use HSA funds to pay that child’s medical bills.
If account holders can’t claim a child as a dependent on their tax returns, then they can’t spend HSA dollars on services provided to that child. According to the IRS definition, a dependent is a qualifying child (daughter, son, stepchild, sibling or stepsibling, or any descendant of these) who:
- Has the same principal place of abode as the covered employee for more than one-half of the taxable year.
- Has not provided more than one-half of his or her own support during the taxable year.
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Is not yet 19 (or, if a student, not yet 24) at the end of the tax year or is permanently and totally disabled.
2015 flexible spending account (FSA) limits announced
Per IRS regulations, pretax employee contributions to Health Flexible Savings Accounts (FSAs) will be capped at $2,550 as of January 1, 2015 (the limit prior to 2015 was $2,500). Some important rules regarding the cap include:
Works on an individual employee basis. If two spouses are eligible for the same employer’s FSA, they each can file separately to have their own $2,550 cap.
If the cafeteria plan mistakenly allows an FSA to exceed the new limit, the enrollee will not face disqualification for the administrative mistake. Applies only to salary reduction contributions under an FSA; does not apply to employer-provided contributions, also referred to as flex credits. Is distinct from the contribution limit for reimbursement under an FSA for dependent care assistance. Does not apply to salary reduction or any other contributions made to a Health Savings Account or Health Reimbursement Arrangement.
The limit may be adjusted periodically for changes in the cost of living. The limit applies on a plan year basis. Plan amendments to reflect the limit are not required until December 31, 2014. Employers may elect lower contribution limits. Please check your plan documents.