HSA Contribution Limits 2016
The IRS has released 2016 contribution limits for HSA’s (Health Savings Accounts). Unfortunately, if you are taking advantage of the benefits of an HSA, the HSA contribution increases for 2016 are nothing to get very excited about.
What is an HSA?
An HSA combines a savings account with a high-deductible health plan and allows employees and employers the opportunity to take control of their health care expenses while receiving a tax deduction for contributions.
All contributions to your HSA accrue interest and remain in your savings account until you use them – there is no use it or lose it rule. Any interest you earn on your account accrues over the years and grows tax-deferred. HSA funds that are used to pay for qualified medical expenses can be used tax-free and there is no penalty for early withdrawals. Add it all up, an HSA allows you to avoid taxes as your pay for your healthcare.
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For calendar year 2016, the annual HSA contribution limits are:
- Individuals – $3,350 (no change)
- Family coverage – $6,750 (up $100 from 2015)
High Deductible Health Plan Minimum Required Deductibles
- $1,300 for individual coverage (no change)
- $2,600 for family coverage (no change)
The maximum annual out-of-pocket expenses include deductibles and co-payments, but not your health premiums. For calendar year 2016, the maximum out-of-pocket levels are:
- $6,550 for individual coverage (up $100 from 2015)
- $13,100 family coveror fage (up $200 from 2015)
Why Should You Consider a Health Savings Account For Your Business?
Tax-Deductible Contributions: HSA’s are funded with pre-tax income. Contributions to your HSA, up to the annual limit, are tax deductible. Your employer can also make pre-tax contributions on your behalf and are excluded from your gross income which could reduce your Adjusted Gross Income (AGI) or the taxes you pay.
Tax-Free Growth: The money in an HSA grows untaxed – and some HSA’s even have investment options, including mutual funds. Some HSA owners choose to invest the assets in money market funds, but they are commonly held as cash.
Tax-Free Withdrawals: As long as withdrawals are used to pay for your health care expenses, you pay zero taxes on withdrawals. You can use your HSA funds to pay for out-of-pocket medical expenses that your current health plan might not cover. Such as, co-pays, co-insurance, deductibles, and even your prescription drugs. HSA funds can even be used to pay for dental and vision care.
To make withdrawals even easier, many HSA’s offer you checkbooks and debit cards to make it easier to pay healthcare expenses and reimburse yourself. There is no need to provide reimbursement claims to the IRS; all you need to do is keep your receipts in case of an audit.
What Are The Downsides Of A Health Savings Account?
HSA funds do not pay for all forms of your health care expenses. For example, you can’t pay for over-the-counter drugs like aspirin or Tylenol with your HSA funds.
If you use funds from your HSA for non-medical expenses, the IRS will assess you with a withdrawal penalty of 20%.
Most HSA’s do have monthly fees and transactional charges to account owners, so ask your bank or financial institution what their fees are before you open an account.
Add it all up, an HSA is a powerful way to reduce the cost of your health insurance while paying for your medical expenses tax-free.