The IRS recently announced the annual inflation-adjusted limits on deductions for contributions to a health savings account (HSA) allowed for taxpayers with individual or family coverage under a high-deductible health plan (HDHP) for calendar year 2020.
Under Internal Revenue Code Sec. 223, individuals who participate in an HDHP are permitted a deduction in computing their individual income tax liabilities for contributions to HSAs set up to help pay their medical expenses. That contribution deduction limit is subject to an annual inflation adjustment.
To be eligible to contribute to an HSA, an individual must participate in an HDHP, which is a health plan with an annual deductible that is not less than a certain limit each year and for which the annual out-of-pocket expenses, including deductibles, co-payments, and other amounts, but excluding premiums, do not exceed a certain limit each year.
The 2020 Limits
For 2020, the annual limit on deductible contributions is $3,550 for individuals with self-only coverage under an HDHP (a $50 increase from 2019) and $7,100 for family coverage (a $100 increase from 2019).
The limits on annual deductibles are also subject to annual inflation adjustments. For 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 increased from 2019. The upper limit for out-of-pocket expenses is $6,900 for self-only coverage and $13,800 for family coverage, both having increased from the 2019 limits.
In a dynamic marketplace for fast changing medical insurance premiums, HSA’s can provide an exceptional planning tool for optimizing and customizing an individual’s health insurance needs.