On May 24th, 2024, the Internal Revenue Service (IRS) released a revenue procedure regarding Health Savings Accounts (HSA) contribution limits. Specifically, Rev. Proc. 2024-25 provides 2025 HSA 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 2025. Concurrently, Rev. Proc. 2024-25 also applies to excepted benefit HRAs for plan years beginning in 2025. Previously, the IRS released guidance on how employers need to report digital asset transactions.
Overview of Health Savings Accounts
Generally, Section 223 of the Internal Revenue Code (IRC) permits eligible individuals to establish HSAs. In brief, an HSA is a 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 them through a High Deductible Health Plan (HDHP). Generally, HDHPs are health plans that only cover preventive services before the deductible.
2025 HSA Contribution Limits
In short, under Section 223 of the IRC, the IRS may make cost-of-living adjustments to HSA limits. These adjustments apply for the calendar year in which a taxable year begins. For calendar year 2025, 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 2025 HSA contribution limits reflect these changes:
- The HDHP minimum deductible increased to $1,650 for self-only coverage or $3,300 for family coverage. (This is compared to the previous year’s $1,600 for self-only coverage and $3,200 for a family.) Meanwhile, annual out-of-pocket expenses cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.
- Limitations on deductions increased to $4,300 for an individual with self-only coverage under an HSA and $8,550 for family coverage. (This is compared to the previous year’s $4,150 for self-only coverage and up to $8,300 for family coverage.)
- The maximum amount made newly available for the plan year for an excepted-benefit HRA is $2,150.
Employer Takeaways
In conclusion, employers sponsoring health and welfare plans should take advantage of the new increased limits by adjusting administrative and operational procedures. Additionally, 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. Employers should generally 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 2025 HSA contribution limits inflation adjustments.