Over Age 55, Family Hsa Maxiumum Contributions for 2019
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Update: For 2021 limits on health savings accounts and HDHPs, run into the SHRM Online commodity IRS Announces 2021 Limits for HSAs and High-Deductible Health Plans. Health savings account (HSA) contribution limits for 2020 are going up $fifty for cocky-only coverage and $100 for family coverage, the IRS announced May 28, giving employers that sponsor high-deductible wellness plans (HDHPs) plenty of fourth dimension to prepare for open enrollment flavour later this year. The annual limit on HSA contributions volition be $iii,550 for self-simply and $7,100 for family coverage. That'south about a one.v percent increase from this yr.In Revenue Procedure 2019-25, the IRS confirmed HSA contribution limits constructive for calendar year 2020, along with minimum deductible and maximum out-of-pocket expenses for the HDHPs with which HSAs are paired.
2020 vs. 2019 HSA Contribution Limits
| Contribution and Out-of-Pocket Limits for Health Savings Accounts and High-Deductible Health Plans | |||
|---|---|---|---|
| 2020 | 2019 | Change | |
| HSA contribution limit (employer + employee) | Cocky-simply: $three,550 Family: $7,100 | Self-only: $3,500 Family: $7,000 | Self-only: +$50 Family: +$100 |
| HSA take hold of-up contributions (age 55 or older) | $1,000 | $one,000 | No change |
| HDHP minimum deductibles | Self-merely: $1,400 Family unit: $2,800 | Self-only: $1,350 Family unit: $two,700 | Cocky-only: +$50 Family unit: +$100 |
| HDHP maximum out-of-pocket amounts (deductibles, co-payments and other amounts, merely not premiums) | Cocky-only: $6,900 Family unit: $13,800 | Self-only: $6,750 Family: $xiii,500 | Self-only: +$150 Family: +$300 |
| Source: IRS, Revenue Process 2019-25. | |||
Contribution limits for diverse revenue enhancement-advantaged accounts for the post-obit year are usually appear in Oct, "except for HSAs, which come out in the latter part of April or May," explained Harry Sit, CEBS, who writes The Finance Vitrify blog. The contribution limits are adjusted for inflation (rounded to the nearest $50) annually, using the Consumer Price Index for All Urban Consumers for the 12-calendar month period ending on March 31. The catch-up contribution amount, yet, is fixed by statute.
While increases in HSA contribution limits are tied to inflation rates, "health care costs continue to outpace inflation, which ways Americans will spend more out-of-pocket each year," said Shobin Uralil, co-founder and chief operating office of Lively, an HSA services firm.
Even so, "these new contribution limits will assist increase the value of HSAs to individuals and families," Uralil said. "Nosotros're seeing growth in HSAs as a vehicle not simply for health savings in the near term, but for anticipated health costs in retirement also."
"While the increases are modest, they are an boosted opportunity for Americans to prepare and pay for their health care needs," said Harrison Stone, full general counsel at HSA services firm ConnectYourCare. "Annual contribution-limit increases allow HSAs to maintain their value and further grow their role equally a key retirement-planning edifice block."
Employer HSA contributions aren't treated equally taxable income only count toward employees' annual contribution limit, Stone noted.
"Employers should consider these limits when planning for the [upcoming] benefit plan year and review plan communications to ensure that the appropriate limits are reflected," advised Damian A. Myers, senior counsel in the employee benefits and executive compensation group at constabulary firm Proskauer in Washington, D.C.
Employer Contributions Rise
Employers contributed more on boilerplate to employees' HSAs final year, while the average employee contribution dipped slightly, according HSA investment advisory firm Devenir's 2018 Year-Cease HSA Market Survey. In January 2019, Devenir collected customer data from the tiptop 100 HSA program administrators in the U.S., which are primarily banks and financial services firms. Among the findings:
- 2018 employer contributions. The average employer contribution to employees' accounts was $839 (amidst employers that fabricated contributions), up from $604 in 2017.
- 2018 employee contributions. The average employee contribution was $1,872 (among employees who made contributions), down from $1,921 in 2017.
More than organizations also are providing opportunities for employees to "earn" employer contributions by participating in health activities, although employers should "continue in listen that there will always exist a cohort of employees who will not participate in these types of wellness programs," co-ordinate to a March 2019 medical trends report from research and informational business firm Gartner and DirectPath, a benefits education, enrollment and health care transparency firm.
The report pegged average employer HSA contributions in 2019 as follows, based on an assay of more than than ane,000 employer health plans in the firms' health plan benchmarking database:
- Single coverage HSA: $1,028.
- Family coverage HSA: $975.
"The key now is to brainwash employees on the value of these offerings and so they can best utilize them—and ultimately bulldoze down health care costs for themselves and for their employers," said Kim Buckey, vice president of client services at DirectPath.
HSA participants who are able to practice so should consider contributing upwards to annual limits "not only to have advantage of the taxation savings, but also to ensure that they are putting themselves in a position to meliorate afford their future health care," Uralil said. "Employers can do their part by extending HSA contributions as a benefit to their employees."
HSA Growth Continues
The Order for Man Resource Direction (SHRM) 2018 Employee Benefits survey plant that last year 56 per centum of surveyed SHRM members offered their employees an HSA, up from 45 percent in 2014.
In addition, 37 percent of employers contributed to employees' HSAs, upward from 30 percent in 2015.
(Click on graphic to view in a split window.)
Different surveys bear witness varying results based on methodology and employer samples. For 2019, the Gartner/DirectPath study found that 51 pct of employers offer tax-advantaged reimbursement accounts in conjunction with HDHPs. Of these employers, the vast majority (79 percent) offer HSAs, while 21 percent offer health reimbursement arrangements (HRAs). Roughly ten percent of employers offering both.
Compliance Considerations
Benefit managers should know and communicate to HSA participants the regime's rules on HSA contributions and then participants don't discover they've run afoul of the contribution rules and face tax fines. Do good advisors recommend that participant communications and open enrollment materials point out the following:
- HSA account holders can brand a catch-up contribution any fourth dimension during the yr in which they turn 55.
- An HSA is in an individual business relationship holder's name, even when used by a spouse or dependents. "There is no articulation HSA, even when you have family unit coverage," Sit said. If only the husband is 55 or older and the wife contributes the full family contribution limit to an HSA in her name, the hubby must open a separate HSA in his proper noun to brand a take hold of-upwards HSA contribution, he explained.
- If both spouses have their ain self-just coverage, however, each spouse may contribute upwards to the almanac HSA self-only limit in their own HSA, including catch-upwardly contributions.
- HSA contributions are typically made via pretax deposits through payroll deductions, but participants can instead make after-tax contributions and claim a revenue enhancement deduction for those. "Either way, these qualifying contributions reduce their taxable income," Stone said. Combined pretax and after-tax contributions must not exceed the annual limit.
- Although the Affordable Care Human action (ACA) allows parents to add to their health plans adult children who have non reached age 26, the revenue enhancement laws regarding HSAs take non changed, and children ages nineteen to 26 must be considered a tax dependent for their medical expenses to authorize for payment from a parent's HSA.
- HSA contributions for a given year may exist made until the individual'southward federal tax render due engagement for that yr—generally Apr fifteen—without extensions. The HSA administrator must indicate that such contributions are attributed to the prior calendar year.
- HSA holders who lose their eligibility during the year must prorate their almanac contribution based on the number of months during which they were HSA-eligible. A month is counted if the employee was eligible to brand HSA contributions on the beginning day of the month.
- Under the last-calendar month rule, those covered by an HSA-eligible health plan on Dec. 1 may contribute the entire year'southward contribution to their HSA instead of making pro rata contributions by calendar month. Partial-year HDHP enrollees who accept reward of the last-calendar month rule must remain covered past an HDHP through Dec. 1 of the following year or pay taxes on their prior-year HSA contributions.
- The IRS also allows a one-time transfer of IRA funds to an HSA, but that transfer combined with all other HSA contributions made for that year cannot exceed the yearly maximums.
- California and New Jersey do non provide a state income revenue enhancement deduction for HSA contributions. For employees who file income tax returns in these states, employers should configure their payroll systems to apply state taxation withholding—simply not federal withholding—to employees' HSA contributions made through payroll deferral.
- New Hampshire and Tennessee tax HSA dividend and interest earnings after a certain dollar amount.
[SHRM members-but 60 minutes Q&A: Are employer contributions to an employee's health savings account (HSA) considered taxable income to the employee? ]
Recovering Mistaken Contributions
In February, the IRS issued guidance for employers on correcting mistaken HSA contributions. IRS Data Alphabetic character 2018-0033 explained that employers may request that a financial institution return funds the employer contributed to a participant's HSA "if there is clear documentary bear witness demonstrating that there was an authoritative or process error." For instance, an employer could remember contributed funds due to:
- HSA contributions that exceeded an employee's payroll election.
- An wrong spreadsheet or confusion between employees with like names.
- Contributions incorrectly entered by a payroll administrator.
- Duplicative payroll files transmitted, causing an employee to receive a contribution twice.
- Delayed processing of a payroll withholding change for an employee.
- Disparity between elected almanac contributions and the bodily number of pay periods.
- A misplaced decimal betoken.
"Employers should maintain documentation to support their exclamation that a mistaken contribution occurred," the IRS advised.
The IRS information letter of the alphabet affords employers "some measure of relief in terms of proceeding to reverse mistakenly granted HSA monies," said Michael Cramer, J.D., a compliance annotator for HUB International, an employee benefits and health insurance banker. However, an employer seeking return of transmitted dollars "will likely need convincing evidence that the contribution was a clear error to persuade the IRS, if the reversal is always questioned," he cautioned. Also, the letter "is by no ways binding guidance or regulation," and institutions administering employees' HSAs may non feel legally compelled to adhere to its guidelines, Cramer noted.
ACA's Limits Differ
In that location are 2 sets of limits on out-of-pocket expenses for health plans, determined annually by federal agencies, which can be a source of confusion for programme administrators.
The Department of Health and Homo Services (HHS) establishes annual out-of-pocket or cost-sharing limits under the ACA for essential health benefits covered nether an ACA-compliant plan, excluding grandfathered plans.
The HHS'southward annual out-of-pocket limits have been slightly college than those ready by the IRS, only to qualify every bit an HSA-compatible HDHP, a plan must not exceed the IRS's lower out-of-pocket maximums.
On Apr 25, HHS published the Notice of Benefit and Payment Parameters concluding rule for 2020 and a fact sheet that summarizes its most significant changes.
Below is a comparison of the ii sets of limits.
| 2020 | 2019 | |
| Out-of-pocket limits for ACA-compliant plans (HHS) | Self-merely: $8,150 Family unit: $16,300 | Self-merely: $7,900 Family: $15,800 |
| | Family unit: $13,800 | Family: $13,500 |
HSAs and Medicare
Employees turning 65 should also carry in heed that Medicare and HSAs don't mix.
To avoid tax penalties, account holders should stop their HSA contributions six months prior to enrolling in Medicare. This is because in one case individuals enroll in Medicare, this coverage will be retroactive up to half dozen months earlier they signed up, simply not beyond their initial month of eligibility.
"For employees who turn 65 during the plan yr, this is important to exist enlightened of during the prior year's open enrollment," Buckey noted, as it may be necessary for them to stop HSA contributions for the coming twelvemonth, or at some point during the yr.
Employees age 65 or older can continue to contribute to their HSA if they pass up to enroll in Medicare while employed with HSA-compatible group health coverage through their employer.
COBRA can also pose Medicare challenges. Employees older than historic period 65 who deferred Medicare enrollment typically receive an eight-month special enrollment period, starting the calendar month after employment ends or their grouping health insurance ends, whichever happens first.
Employees should beware that if subsequently ending employment they elect to use COBRA for their insurance for more than eight months (and COBRA coverage is generally bachelor for up to 18 months), then the penalties for missing the special enrollment period and enrolling late are meaning and, in the form of college premiums, continuous.
As a result, using COBRA to delay Medicare enrollment in order to continue contributing to an HSA can be a costly mistake.
Related SHRM Manufactures:
For Employees Approaching Retirement, Wellness Coverage Decisions Loom, SHRM Online, November 2019
Employees Even so Perplexed past HSA Plans During Open Enrollment, SHRM Online, October 2019
Medicare-Eligible Employees Pose HR Challenges, SHRM Online, February 2019
How to Keep HSAs Exempt from ERISA, SHRM Online, August 2017
Tear Downwardly the Silos Between Employees' HSAs and 401(thousand)south, SHRM Online, June 2017
Other 2020 Inflation-Adjusted Limits/Thresholds
2020 Benefit Plan Limits and Thresholds Chart, SHRM Online, November 2019
401(one thousand) Contribution Limit Rises to $19,500 in 2020, SHRM Online, November 2019
2020 FSA Contribution Cap Rises to $two,750, SHRM Online, Nov 2019
2020 Payroll Taxes Will Hit Higher Incomes, SHRM Online, October 2019
PBGC Raises Pension Premium Rates for 2020, SHRM Online, October 2019
IRS Lowers Employer Health Plans' 2020 Affordability Threshold, SHRM Online, July 2019
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Source: https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/irs-2020-hsa-contribution-limits.aspx
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