Unpacking the 2024 Inflation Adjusted Amounts for HSAs: Simple Words for Taxpayers

The past few years have had one word circling through conversations all across America: inflation. Consumers feel it at the pump and grocery stores. Business owners feel it in the rising costs of materials.  

The Internal Revenue Service (IRS) just recently announced that they would be making adjustments to Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs) in 2024.

What is an HSA? 

Health Savings Accounts (HSAs) are exactly what it sounds like: a savings account for health related expenses.  Through payroll deductions, employees can contribute to their HSA using pre-tax dollars.

This not only decreases the amount of taxable income, it also allows them to pay for qualified medical expenses without dipping into their personal accounts.

HSAs can only be combined with specific insurance plans: a high deductible health plan. In 2024, a plan counts as “high deductible” if you have to pay at least $1,600 out of your pocket for “self-only” coverage, or $3,200 for “family” coverage, before your insurance starts to help. 

And the most you’d have to pay out of your own pocket for the year (not counting the monthly payments for the insurance itself) can’t be more than $8,050 for “self-only” coverage, or $16,100 for “family” coverage.

What is an HRA?

Health Reimbursement Arrangements (HRAs) are similar to HSAs in that contributions can be made to help cover qualified medical expenses.

The biggest difference between an HRA and an HSA is who can contribute.  In an HSA, an employee and employer can make contributions during the year. With an HRA, only the employer can make contributions. In 2024, the maximum contribution that can be made by an employer to an HRA is $2,100.

What are the changes?

Here are the changes announced in the new IRS article (Rev. Proc. 2023-23) for the year 2024 compared to 2023:

1. Health Savings Accounts (HSAs)

   – Self-only coverage: The annual limit on deductions has increased from $3,850 in 2023 to $4,150 in 2024

   – Family coverage: The annual limit on deductions has increased from $7,750 in 2023 to $8,300 in 2024

   – The minimum annual deductible for a high deductible health plan has increased from $1,500 to $1,600 for self-only coverage and from $3,000 to $3,200 for family coverage.

   – The maximum annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) for a high deductible health plan have increased from $7,500 to $8,050 for self-only coverage and from $15,000 to $16,100 for family coverage.

2. Excepted Benefit Health Reimbursement Arrangements (HRAs)

   – The maximum amount that may be made newly available for the plan year for an excepted benefit HRA has increased from $1,950 in 2023 to $2,100 in 2024

Summing it up

While it may seem like 2024 is far away, it’s important for business owners to begin to plan for these new changes now. The adjusted amounts allowed for contributions to HSAs and HRAs could impact your tax savings.

As always, checking in with your tax advisor regularly is a business best practice. Don’t wait until the new year to plan for these new amounts.

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