Health Savings Accounts, or HSAs, have been around for nearly 20 years (they debuted in December 2003), and have grown in popularity. Today, assets held in more than 33 million accounts exceed $100 billion. It’s projected that the number of HSAs will grow to 43 million by the end of 2025. Many businesses have adopted HSAs as their only healthcare option or one of the choices for employees. For small businesses, HSAs are a good way to ensure that employees have health coverage without busting the budget. While there’s plenty of time to make your company’s healthcare arrangements for 2024, it’s not too early to begin thinking about it.
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In order to contribute to HSAs, the employee must be covered by a high-deductible health plan (HDHP) and cannot be on Medicare. An HDHP, as the name implies, covers costs other than certain preventive care after a deductible has been met, so premiums are much lower than traditional group health plans. From a tax perspective, an HDHP is health insurance that has a minimum annual deductible and a maximum out-of-pocket limit. The following chart shows the parameters for 2023 and what they’ll be in 2024 so you can plan now.
|Type of coverage||Minimum annual deductible||Minimum annual deductible||Maximum out-of-pocket costs||Maximum out-of-pocket costs|
HSA parameters for 2023-24: Deductible, OOP, contribution limits.
There is a cap on what can be contributed annually to HSAs. For 2023, the maximum amount is $3,850 for self-only coverage and $7,750 for family coverage. For 2024, the maximum amount will increase to $4,150 for self-only coverage and $8,300 for family coverage. If the employee is 55 or older, an additional $1,000 is permitted. But spouses must have separate HSAs for both to make the additional contribution.
Employees handle their own HSAs; employers aren’t responsible for them. This means that it’s up to employees to decide whether, when, and for what to take distributions. Those for qualified medical expenses are tax free; those for non-qualified expenses are subject to a 20% penalty unless the owner is age 65 or older.
The law is very flexible when it comes to handling HSAs. Here are some ways to do it?
Because of their popularity, and the potential benefit of encouraging savings for healthcare purposes, there have been various proposals in Congress to expand the use of HSAs. Two recent proposals worth noting:
In the coming months, decide whether you want to offer HSAs and the extent of contributions you’ll make. Monitor developments in Congress to note changes in the rules for HSAs. Discuss all of this with your CPA or other adviser to factor in the cost when preparing your 2024 budget. You can find more details about HSAs in IRS Publication 969 (it doesn’t have the 2023 or 2024 amounts).
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This article was written by Barbara Weltman from Small Business Trends and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to [email protected].