Each year, the IRS announces inflation-adjusted limits for HSA and FSA contributions as well as minimum deductibles and out-of-pocket levels for High Deductible Health Plans (HDHP). Based on their recent announcement, maximum contribution levels going into effect on January 1, 2019 are as follows:
The IRS and Department of Health and Human Services recently released new limits for contributions to HSAs and Health FSAs for 2017. Contributions by individuals to HSAs cannot exceed $3,400 in 2017, with the maximum family contribution remaining at $6,750, the same as 2016. Once again, a $1,000 catch-up contribution also applies.
Health FSA limits for 2017 have been increased by $50 from $2,550 per employee to $2,600. Health FSA transportation fringe benefits for parking, transit passes or vanpooling are remaining the same this year, with a limit of $255 for each.
The IRS began indexing affordability safe harbors to inflation last year. This year, minimum annual deductibles for High Deductible Health Plans (HDHPs) remain unchanged at $1,300 for individuals and $2,600 for families, with required out-of-pocket maximums remaining at a minimum of $6,550 for individuals and $13,100 for families.
While it will take support from Republicans and Democrats to fully replace Obamacare, a simple majority of Republican senators could repeal parts of the law through reconciliation. Here are just a few:
- The individual and employer mandates can be reduced to zero
- The Cadillac tax, currently delayed to 2020, could be repealed
- Individual subsidies to purchase exchange coverage can be reduced to zero
Another welcome step requiring only a simple majority in the Senate would be increasing the limits on FSA and HSA contributions.
While President Donald Trump has talked about several remedies for healthcare, one he mentions often is expanding the use of Health Savings Accounts (HSAs) – consumer directed accounts that are typically paired with high deductible health plans (HDHPs). Like flexible spending accounts (FSAs), they offer a convenient way to pay for out-of-pocket costs like doctor visit co-pays and other qualified medical expenses.
No Use It or Lose It Rule
One big advantage HSAs offer is that account balances are not subject to the Use It or Lose It rule that applies to FSAs – surplus funds can roll over from year to year. The IRS maximum annual contribution in 2017 is $3,400 for individuals and $6,750 for those with family coverage under a HDHP. Individuals age 55 and older can contribute an extra $1,000. HSAs can be used to pay for qualified medical expenses, while surplus funds can grow and be used in the future. Employer contributions, where available, can go a long way in meeting future qualified medical expenses. According to the 2016 Devenir HSA Market Survey, nearly a third of all funds contributed to HSAs in 2015 came from employers, with the average employer contribution being approximately $850.
A Triple Tax Advantage
A HDHP with an HSA can make it easy to set aside pre-tax dollars through payroll deductions. Individuals can also fund an HSA with after-tax dollars, which can be taken as a tax deduction on their personal tax return. Finally, all contributions accumulate tax free and can be withdrawn tax free to pay for future qualified medical expenses, including in retirement. No federal tax is due on funds contributed to a Health Savings Account, and many states follow the federal tax law.
Looking ahead, we know that healthcare costs will continue to rise and the need to engage employees will grow. Regardless of actions taken by the new administration, we believe HSAs are a great way to help employees save for future medical expenses and better understand the importance of cost and quality in the process.
While we are awaiting an announcement from the IRS, the cap put on allowable employee contributions to Flexible Spending Accounts is expected to increase by $50. The cap index, which is based on the medical component of the consumer price index, did not increase last year. Inflation has been high enough to support an increase from the current level of $2,550 to $2,600 for 2017, however employers do not have to increase the limit. Some employers are increasing the limit prior to open enrollment, while others will likely hold off and make the adjustment for their 2018 plan year.
The Internal Revenue Service (IRS) has announced the inflation-adjusted contribution limits for health savings accounts (HSAs) and health flexible spending arrangements (health FSAs) for tax year 2017.
2017 Contribution Limits
The tax year 2017 contribution limits for HSAs and health FSAs are as follows:
- HSAs: The annual limitation on deductions for an individual with self-only coverage under a high deductible health plan (HDHP) is $3,400 (up from $3,350 for 2016). The annual limitation on HSA deductions for an individual with family coverage under an HDHP is $6,750 (unchanged from 2016). For 2017, an HDHP is defined 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 (unchanged from 2016), and annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) that do not exceed $6,550 for self-only coverage or $13,100 for family coverage (unchanged from 2016).
- Health FSAs: The annual dollar limitation on employee contributions to employer-sponsored health FSAs rises to $2,600 (up from $2,550 for 2016).
For more information, please see IRS Revenue Procedures 2016-28 and 2016-55.
Visit our HSAs, FSAs, and Other Tax-Favored Accounts section for more on HSAs and health FSAs.
The Internal Revenue Service (IRS) has announced a number of inflation-adjusted tax items for 2016, some of which remain unchanged. Among other items, the annual dollar limit on employee contributions to employer-sponsored health flexible spending arrangements (FSAs) remains unchanged (at $2,550).
Other Items of Interest
Other inflation-adjusted items for tax year 2016 that may be of interest to employers and employees include the following:
- Qualified Transportation Fringe Benefits. For tax year 2016, the monthly limitation for the qualified transportation fringe benefit remains at $130 for transportation, but rises to $255 for qualified parking (up from $250 for tax year 2015).
- Archer MSAs. The 2016 limits for annual deductibles and maximum out-of-pocket expenses for high deductible health plans (HDHPs) are as follows:
- Self-only coverage. The plan must have an annual deductible that is at least $2,250 (up from $2,200 for 2015); but not more than $3,350 (up from $3,300 for tax year 2015). The annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits cannot exceed $4,450 (unchanged from 2015).
- Family coverage. For tax year 2016, the floor for the annual deductible remains at $4,450, however the deductible cannot be more than $6,700 (up $50 from 2015). The annual out of-pocket expenses required to be paid (other than for premiums) for covered benefits cannot exceed $8,150 (unchanged from 2015).
- Earned Income Credit. The maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have 3 or more qualifying children (up from a total of $6,242 for tax year 2015). IRS Revenue Procedure 2015-53 includes a table that provides maximum credit amounts for other categories, income thresholds, and phase-outs.
For More Information
Details on these inflation adjustments and others are contained in Revenue Procedure 2015-53.
Various Tax Benefits Will Change in 2015 Due to Inflation Adjustments
The IRS has announced a number of inflation-adjusted tax items for 2015. Items that may be of particular interest to employers and employees include the following:
Clarifying FSA Changes
The Treasury Department and IRS recently issued Notice 2012-40, limiting health FSA salary reduction contributions to $2,500 effective January 1, 2013. For plan years beginning after December 31, 2013, the limit will be indexed based on cost-of-living adjustments. Continue reading
To combat cost increases that are expected to top 7% this year, many employers are looking at consumer directed health plans for savings. More than half of employers surveyed recently by the National Business Group on Health are increasing the percentage of plan costs paid by employees while 4 out of 10 have increased their in-network deductibles. When it comes to large employers, 75% are offering High Deductible Health Plans (HDHPs) with Health Savings Accounts (HSAs) this year, compared to just over 60% in 2011. Continue reading