IRS releases 2023 Health Savings Account (HSA) limits

How do you plan to help pay for health care costs today and well into your future?

With a Health Savings Account (HSA).

So, what’s the big news?

If you have an HSA, the IRS just increased your ability to contribute more in 2023 to cover eligible out-of-pocket medical expenses for you and your family to use now and into the future.

Let me explain.

With rising inflation and health care costs, the Internal Revenue Service (IRS) has announced the inflation-adjusted figures that apply to Health Savings Account contributions in calendar year 2023 and the minimum deductible and maximum out-of-pocket for HSA-qualified medical plans that begin in 2023.

Contribution limits

Depending on whether you enrolled as an individual within your high deductible health plan or set up as a family, this will determine the type of contribution you can make. The maximum contribution to an HSA in 2023 increases from $3,650 to $3,850 for self-only and from $7,300 to $7,750 for family coverage. The catch-up contribution for HSA owners who are age 55 or older on or before Dec. 31, 2023, remains at $1,000.

The money you wish to contribute will be taken from a payroll deduction before taxes and placed directly into your HSA account and are tracked at the start of each calendar year. If you wish to increase your contributions (and reduce your taxable income) based on the new limits, ask your employer to adjust your contributions through payroll deductions.

In some cases, employers may also contribute to your HSA. The maximum contribution limits include funding from all sources and any deposits made by your employer reduces dollar-for-dollar the maximum that you can personally contribute to reduce your taxable income.

Here is some more good news

If you’re enrolled in family coverage, you can contribute up to $7,750 in 2023, even if you’re the only family member covered on the plan who’s eligible to open and fund an HSA.

If you’re married and both you and your spouse are HSA-eligible, your combined contributions can’t exceed $7,750 in 2023. You can increase it another $1,000 in 2023 as a catch-up contribution if you are each age 55+.

Your upfront costs

For the calendar year 2023, an HSA-qualified High Deductible Health Plan must have a minimum annual deductible of $1,500 for self-only and $3,000 for family coverage. All services except those that are recognized under federal tax law as preventive care must be applied to the deductible.

Be sure that you understand how your plan works so that you can manage your financial responsibility. If your plan includes coverage for services outside the network, it may impose separate deductibles for in-network and out-of-network services.

What these changes mean to you

You don’t need to do anything immediately. Your HSA-qualified plan that renews on or after Jan. 1, 2023, will include deductibles and out-of-pocket maximums within these new ranges.

You can reduce your 2023 taxable income by a larger amount than you can this year because of the higher contribution limits. Remember, you can make your 2023 contributions between Jan. 1, 2023, and Monday, April 15, 2024. But your 2023 pre-tax payroll deductions through your company’s Cafeteria Plan must be made during that calendar year.

You don’t have an HSA? Benefit from your benefits

If you have a high-deductible health plan but don’t yet have an HSA, here are some of the benefits that may benefit you in more ways than one.

Benefit from this quadruple tax-advantaged HSA account:

1. Not subject to federal income tax, nor state income tax except in California and New Jersey
2. Not subject to FICA tax
3. Earnings aren’t subject to tax
4. Withdrawals for qualified medical expenses are tax-free (withdrawals for non-qualified expenses before age 65 will be subject to a 20% penalty in addition to ordinary income tax).

Watch this video to learn more about the many ways you save more by having an HSA.

Access the IRS notice announcing the 2023 figures: RP-2022-24 (irs.gov)

William G. (Bill) Stuart is Director, Planning and Business Analysis, at Voya Financial. He has nearly three decades’ experience in employee benefits and had worked with Health Savings Accounts since their introduction in 2004. He chairs the American Bankers Association HSA Council’s compliance committee and is the author of HSAs: The Tax-Perfect Retirement Account.