Each year, the IRS sets contribution limits for Health Savings Accounts (HSAs). This year, HSA contribution limits are up by about 1.5% from 2020’s amount. New contribution limits for 2021 are going up $50 for individuals and $100 for families. Limits are set based on a calendar year. and the allowable contribution is prorated by the number of months an individual is eligible to contribute to an HSA.
A HSA is a tax-exempt savings account that employees can use to pay for qualified health expenses. Individuals eligible to contribute to a HSA can make contributions to it at any point during the tax year. To be eligible for a HSA, one must:
- Be covered by a qualified high deductible health plan (HDHP)
- Not be enrolled in Medicare
- Not be claimed as a dependent on someone else’s tax return
Based On Inflation
Contribution limits for the following year are based on the rate of inflation. To determine this year’s contribution limits, the IRS used a 12-month period calculation ending in March 2020. The annual limit on HSA contributions for this year is $3,600 for individuals and $7,200 for families. Employees aged 55 and older with a HSA account can contribute an additional $1,000 on top of the maximum as a catch-up contribution to support their savings as they near retirement.
Contribution limits are not the only things that are affected by inflation. Each year, the IRS also sets minimum deductible amounts and maximum out-of-pocket limits for HDHPs. For 2021:
Self-Only Coverage with a HDHP:
- Minimum deductible for a HDHP to be HSA-qualified: $1,400 ($0 change from 2020)
- Maximum HDHP out-of-pocket limit: $7,000 ($6,900 in 2020)
Family Coverage with a HDHP:
- Minimum deductible for a HDHP to be HSA-qualified: $2,800 ($0 change from 2020)
- Maximum HDHP out-of-pocket limit: $14,000 ($13,800 in 2020)
What You Should Do
As an employer, you need to make sure that your employees are aware of these new limits. Communicate to your employees that:
- The out-of-pocket maximum for a family high-deductible health plan is $14,000.
- All non-grandfathered plans have to cap out-of-pocket spending at $8,550 for any covered person. A family plan with an out-of-pocket maximum of $8,550 can meet this by embedding an individual out-of-pocket maximum in the plan that is no higher than $8,550.
- High deductible health plans cannot have an embedded family deductible that is lower than the minimum HDHP family deductible of $2,800.
HSAs are a great savings tool to have in your belt. Offering them to your employees will lower your group insurance costs, while allowing employees to help pay for their medical expenses. If you are interested in offering your employees insurance or a HSA, an EZ agent can help. We will do all the research and comparing for you and find you the plan that will best suit your business. To compare quotes within minutes, at no cost, enter your zip code in the bar above, or to speak to an agent, call 888-998-2027.