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IRS Set to Increase HSA Limits for 2023

IRS Set to Increase HSA Limits for 2023

The IRS has announced updated HSA contribution limits for the 2023 year, which represent a significant increase compared to recent annual increases. This jump creates opportunities for employers to reconsider their contribution amounts and remind employees to contribute as they plan for the enrollment process. Read on to learn more about these updates and how you can use them to best prepare for your next open enrollment period. 

Refresher: What Is an HSA?

A health savings account (HSA) is a personal bank account with significant tax advantages that an individual can use to pay for medical expenses, typically paired with high-deductible health insurance plans (HDHP). A wide variety of banking institutions around the country offer these types of accounts to single users and families.

To properly utilize their benefits, people with HSAs need to be enrolled in a compatible HDHP. They can use the money from their HSAs for qualified medical expenses, which can be determined by reviewing the IRS’s Publication 502

Health Savings Accounts (HSAs) differ from flexible spending accounts (FSAs), in that an HSA balance can be rolled over year after year. They can be used indefinitely so long as the purchase is a qualified medical expense. This feature is typically desirable for younger, healthier individuals who don't utilize the sum of their yearly contributions by the time the term resets.

 

What Are the New HSA Contribution Limits?

The IRS recently announced increases to 2023 HSAs and HDHPs. The announcement was made on April 29th, allowing plenty of time for employers to plan for the following open enrollment season. 


 

2022

2023

HSA Contribution Limits, Including Both Employer & Employee

Individual: $3,650


Family: $7,300

Individual: $3,850


Family: $7,750 

HSA Catch-Up Contributions

for Ages 55 & Up

$1,000

$1,000

HDHP Maximum Out-Of-Pocket Amounts Including Deductibles, Co-Payments, and Other Amounts, But Not Premiums

Individual: $7,050


Family: $14,100

Individual: $7,500


Family: $15,000

HDHP Minimum Deductibles

Individual: $1,400


Family: $2,800

Individual: $1,500


Family: $3,000


These new HSA and HDHP limits for the 2023 year represent a much larger jump than prior years. This opens up a unique opportunity for employers to increase their contributions. Employees may consider increased employer contributions as a desirable benefit that can lead to stronger culture and increased retention

 

How Are New HSA Contribution Limits Determined?

HSAs contribution limits are typically adjusted for inflation each year and then rounded up or down to the nearest $50. The adjustment is based on the Consumer Price Index for All Urban Consumers

These HSA rates are typically released earlier than other employee benefit rates. This is because employers need to get state approval for all of their insurance offerings. The earlier release allows many employers to begin planning for the upcoming open enrollment period in advance. 

It is an excellent idea for organizations to use this information to create a plan and get a head start on the new benefits enrollment period. Employers can best prepare by including new and adjusted limits in all open enrollment literature and materials being utilized.


Important Contribution Considerations

Beyond the limit increases for 2023, there are a few other points of note:

  1. If a married couple's family coverage is HSA-eligible, they share a single contribution limit of $7,750 for the 2023 year. Conversely, if two spouses each have self-only coverage, they will be allowed to contribute $3,850 to their respective accounts.

  2. If spouses aged 55 or over wish to each contribute the extra $1,000 catch-up contribution, they must have two separate HSA accounts listed under different names. 

  3. If one spouse is under the age of 55 while the other spouse is 55 or older, the younger spouse can contribute the total family contribution amount. Still, the older spouse must open a new account under a different name to make the extra $1,000 catch-up contribution.

  4. Unless it is withdrawn prior to the tax deadline, all excess contributions will be subjected to an excise penalty amount of 6%.

 

Additional Resources

You can also stay informed, educated, and up-to-date with IRS updates and other important topics by using BerniePortal’s comprehensive resources:

  • BerniePortal Blog—a one-stop-shop for HR industry news

  • HR Glossary—featuring the most common HR terms, acronyms, and compliance

  • HR Guides—essential pillars, covering an extensive list of comprehensive HR topics

  • BernieU—free online HR courses, approved for SHRM and HRCI recertification credit

  • HR Party of One—our popular YouTube series and podcast, covering emerging HR trends and enduring HR topics

BernieU Course The Ultimate Guide to Benefits Administration and Open Enrollment

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