2020 HSA Contribution Limits: What Employees Need to Know
Health Savings Accounts (HSAs) offer a tax-advantaged way for employees with high-deductible health plans to save for medical expenses. The IRS recently released the annual inflation-adjusted limits for HSA contributions in 2020, allowing employees to save more money than in previous years.
2020 HSA Contribution Limits
The IRS has increased the annual limits for HSA contributions, benefiting taxpayers who participate in high-deductible health plans (HDHPs). Employees can make pre-tax payroll deductions for HSA contributions, which help pay unreimbursed medical expenses (but not premiums). Both individuals and employers can contribute to these accounts.
The new annual contribution limits for 2020 are:
- $3,550 for individual coverage (up $50 from 2019)
- $7,100 for family coverage (up $100 from 2019)
HDHP Minimum Deductible Requirements
The IRS also adjusts annual deductible limits for inflation. For 2020, qualifying HDHPs must meet these minimum deductibles:
- $1,400 for individual coverage (an increase of $50)
- $2,800 for family coverage (an increase of $100)
Out-of-Pocket Expense Limits
The IRS has increased the upper limits for out-of-pocket expenses (deductibles, co-payments, etc.) to:
- $6,900 for individual coverage (up from $6,750 last year)
- $13,800 for family coverage (up from $13,500 last year)
Catch-Up Contributions
HSA catch-up contributions for individuals age 55 or older remain unchanged at $1,000.
How These Limits Are Determined
Each year, the IRS adjusts HSA contribution limits for inflation using the Consumer Price Index for All Urban Consumers. However, statute fixes the catch-up contribution amount. While the IRS ties these limit increases to cost-of-living adjustments, health care costs outpace inflation, meaning Americans spend more money out-of-pocket each year.
Growing Popularity of HSAs
HSA enrollment continues to grow as many employees view these accounts as a way to save for medical expenses in retirement. Additionally, more employers now offer employer contributions to employee HSA accounts.
2020 HSA Limits Summary
| Coverage Type | Contribution Limit | Min. Deductible | Max. Out-of-Pocket |
|---|---|---|---|
| Individual | $3,550 | $1,400 | $6,900 |
| Family | $7,100 | $2,800 | $13,800 |
| Catch-up (55+) | $1,000 | N/A | N/A |
Making the Most of Your HSA
An HSA provides an excellent way to maximize health care dollars and minimize tax burden. However, these accounts require planning by both employers and employees.
For employers: Contact our retirement plan services team to discuss offering this type of plan at your company.
For employees: Talk to your financial professional today to see if you could benefit from utilizing this type of plan.
by Steve Renner, QKA (New Philadelphia)
Also Read:
Evaluation Of HSAs Requires A Team Approach
