Recently, the Internal Revenue Service (IRS) released a revenue procedure regarding Health Savings Accounts (HSAs) that provides 2023 HSA contribution limits adjusted for inflation. Additionally, the IRS’s revenue procedure communicates the maximum amount newly available for excepted benefit health reimbursement arrangements (HRAs). The revenue procedure is effective for HSAs for calendar year 2023 and for excepted benefit HRAs for plan years beginning in 2023. Previously, the IRS and the U.S. Department of Labor (DOL) released their final rule on filing the 2022 Form 5500.
Overview of Health Savings Accounts
Section 223 of the Internal Revenue Code (IRC) permits eligible individuals to establish HSAs. In brief, an HSA is a type of savings account that lets individuals set aside money on a pre-tax basis. Individuals may use these funds to pay for qualified medical expenses. Individuals may use untaxed dollars in an HSA to pay for deductibles, copayments, coinsurance, and other expenses. However, HSA funds cannot generally go towards paying premiums. While individuals may use HSA funds to pay for qualified medical expenses at any time, they must contribute those funds through a High Deductible Health Plan (HDHP). Generally, HDHPs are health plans that only cover preventive services before the deductible.
2023 HSA Contribution Limits
Under Section 223 of the IRC, the IRS may make cost-of-living adjustments to HSA contribution limits. These adjustments apply for the calendar year in which a taxable year begins. For calendar year 2023, the IRS made cost-of-living adjustments for HDHP minimum deductibles, limitations on deductions, and the maximum amount made newly available for the plan year for an excepted benefit HRA. The following cost-of-living adjustments for 2023 HSA contribution limits reflect these changes:
- The HDHP minimum deductible increased to $1,500 for self-only coverage or $3,000 for family coverage. (This is compared to the previous year’s $1,400 for self-only coverage and $2,800 for a family). Meanwhile, annual out-of-pocket expenses cannot exceed $7,500 for self-only coverage or $15,000 for family coverage.
- Limitations on deductions increased to $3,850 for an individual with self-only coverage under a HDHP and $7,750 for family coverage. (This is compared to the previous year’s $3,650 for self-only coverage and up to $7,300 for family coverage).
- The maximum amount made newly available for the plan year for an excepted benefit HRA is $1,950.
While employers must keep employee benefit plan records under the Employee Retirement Income Security Act (ERISA) for at least six years after filing, health care benefit records related to HSAs differ somewhat. In general, individuals should retain HSA documents for at least three years in case of an IRS audit. Interested parties may contact the Office of Associate Chief Counsel for further information regarding the inflation adjustments to 2023 HSA contribution limits.