For 2021, the IRS just announced the increased new contribution limits for Health Savings Accounts (HSA) to $3,600 for individuals and $7,200 for family plans. In turn, adjustments to High Deductible Health Plans (HDHP) were also made. The minimum HDHP deductible is $1,400 for individuals and $2,800 for families, with a maximum out-of-pocket expense of $7,000 for individuals and $14,000 for families.
A health savings account (HSA) is a tax-advantaged savings account that you can use for medical expenses. It is paired with a qualifying health insurance plan; typically a HDHP. An HDHP is a plan that offers lower monthly premiums in exchange for a higher deductible (the amount you pay out of pocket before insurance kicks in).
There are several benefits of an HSA, including:
- The account holder’s payroll contributions are made with pretax dollars, which may help lower their tax bill.
- The funds in an HSA do not expire at the end of the year, allowing the account owner to invest the funds over time or use it for future eligible healthcare expenses. The passing of the CARES Act, in March 2020, added additional over the counter (OTC) products and feminine hygiene products to the list of eligible items that can be purchased with an HSA or other medical spending account.
- The funds in an HSA are the employee’s to keep, even if they leave the employer providing the account.