The Internal Revenue Service (IRS) is making the health savings account (HSA) deductible range a little more generous for 2021.
The minimum deductible levels are staying the same, but maximums are rising a bit.
The IRS has published the new program limits in IRS Revenue Procedure 2020-32.
- A copy of IRS Revenue Procedure 2020-32 is available here.
- An article about health insurance deductibles is available here.
Federal law requires HSA owners to combine the accounts with health insurance with substantial minimum deductibles and moderately high limits for spending on out-of-pocket (OOP) medical expenses.
Here’s a table showing that the minimum deductibles will stay the same in 2021, but the maximum contribution deduction levels and maximum OOP limits will increase 1.4%.
|Annual OOP maximum||$6,900||$7,000||1.4%|
|Annual OOP maximum||$13,800||$14,000||1.4%|
Congress created the HSA program when it passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
The program provides a mechanism taxpayers can use to keep health account contributions out of taxable income and to use the account cash to pay for qualified health care expenses.
People can also use health reimbursement arrangements (HRAs) and flexible spending accounts (FSAs) to keep health care money out of taxable income. For individuals, one of the appeals of using an HSA is that the individual with the account, not an employer plan sponsor, owns the HSA. Even workers in employer-sponsored HSA programs can take the HSAs with them when they leave the employer.
HSA owners who have no need to spend the HSA assets on medical bills during their working years can use the accounts to pay for post-retirement health care, or post-retirement long-term care.
One HSA program architects’ goal was to help people pay routine health care bills out of their own resources, without having to file insurance claims and put up with health plan utilization management programs for relatively small items.