The IRS has published Rev Proc 2020-32 which includes the annual inflation-adjusted limits on deductions for contributions to a health savings account (HSA) allowed for taxpayers with family coverage under a high-deductible health plan (HDHP) for calendar year 2021.
Individuals participating in an HDHP are allowed to deduct contributions to HSAs under § 223 of the United States tax code. The contribution deduction limit is subject to an annual inflation adjustment. An individual is required to participate in an HDHP, which is defined as a plan with a deductible that is not less than the applicable limit for each year and that out of pocket expenses do not exceed the statutorily assigned amount (inflation adjusted) each year.
For 2021, the annual limit on deductible contributions is $3,600 for individuals with self-only coverage under an HDHP (a $50 increase from 2020) and $7,200 for family coverage (a $100 increase from 2020). The lower limit on the annual deductible for an HDHP is $1,400 for self-only coverage and $2,800 for family coverage, both unchanged from 2020. The upper limit for out-of-pocket expenses is $7,000 for self-only coverage (a $100 increase from 2020) and $14,000 for family coverage (a $200 increase from 2020).
HSAs can be great tax planning vehicles because:
- Contributions to HSAs are not subject to federal income taxes.
- Earnings to an HSA from interest and investments are tax-free.
- Distributions from an HSA to pay for qualified medical expenses are tax-free.
Have questions? Need more information? Schedule a free consultation today!