IRS Gives Taxpayers Higher HSA Limits for 2023 UPDATED
Individuals participating in high-deductible health plans (HDHPs) can contribute more of their pre-tax earnings to health savings accounts (HSAs) in 2023 to yield greater tax and savings benefits.
For 2023, taxpayers may contribute up to $3,850 to an HSA and qualify for a full tax deduction. For family plans, the annual limit on deductible contributions is $7,750. In addition, HSA owners age 55 and older by the end of this calendar year can make additional HAS “catch-up” contributions of $1,000.
To qualify for an HSA, taxpayers must participate in “high deductible” health plans, which, for 2023, include those with:
- a minimum annual deductible of $1,500 for self-only coverage, or $3,000 for family coverage (up from $1,400 and $2,800, respectively, in 2022,) and
- a maximum out-of-pocket cost (with expenses including deductibles and co-payments and excluding plan premiums) of $7,500 for self-only coverage, or $15,000 for family coverage (up from $7,050 and $14,100, respectively, in 2022.)
In addition to providing plan participants with reduced insurance premiums, high-deductible health plans also allow taxpayers to enjoy the triple-tax benefits of HSAs. This means taxpayers can 1) make contributions with pretax dollars that reduce their taxable income, 2) allow invested contributions, interest and earnings to grow tax-free, and 3) take withdrawals free of tax to pay for qualifying medical expenses, including out-of-pocket deductible costs. Moreover, taxpayers may exclude from their gross income any HSA contributions made by their employers, and they may keep their HSAs as their own even if they change jobs or leave the workforce entirely.
Over the past few years, the IRS has greatly expanded the range of medical and non-medical expenses that qualify for tax-free withdrawals from HSAs. Today, taxpayers can use HSA savings to pay for acupuncture; weight-loss programs for the treatment of specific, physician-diagnosed diseases; psychiatric and psychologic care; durable medical equipment; certain over-the-counter medications and personal-care items; costs for continuing health care coverage under COBRA; and premiums paid for long-term-care insurance. However, using HSA funds for anything other than qualifying medical expenses will be subject to tax and a penalty.
About the Author: Rachel Kenney Rego, CPA, is a senior manager of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where she works with entrepreneurs and high-net-worth families to develop and implement strategies for business, individual and estate tax efficiency. She can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or info@bpbcpa.com.
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