IRS Sets 2017 HSA Contribution Limits
Health savings account annual limit for individuals rises by $50
| | By Stephen Miller, CEBS May 2, 2016 |
Aside from a modest increase of $50 in the amount that individuals may contribute annually to their health savings accounts (HSAs) for self-only coverage, HSA-related limits for 2017 are holding firm.
In Revenue Procedure 2016-28, issued April 29, the IRS provided the inflation-adjusted HSA contribution limits effective for calendar year 2017, along with minimum deductible and maximum out-of-pocket expenses for the high-deductible health plans (HDHPs) that HSAs are coupled with.
These rate changes reflect cost-of-living adjustments, if any, and rounding rules under Internal Revenue Code Section 223.
"The contribution limits for various tax advantaged accounts for the following year are usually announced in the fall, except for HSAs, which come out in the spring," explained Harry Sit, CEBS, who edits The Financial Buff blog. "Due to mild inflation and rounding rules, the 2017 HSA contribution limit for family coverage will stay unchanged."
A comparison of the 2016 and 2017 limits is shown below:
Contribution and Out-of-Pocket Limits | |||
| For 2017 | For 2016 | Change |
HSA contribution limit (employer + employee) | Self-only: $3,400 Family: $6,750 | Self-only: $3,350 Family: $6,750 | Self-only: +$50 Family: no change |
HSA catch-up contributions (age 55 or older)* | $1,000 | $1,000 | No change** |
HDHP minimum deductibles | Self-only: $1,300 Family: $2,600 | Self-only: $1,300 Family: $2,600 | Self-only: no change Family: no change |
HDHP maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums) | Self-only: $6,550 Family: $13,100 | Self-only: $6,550 Family: $13,100 | Self-only: no change Family: no change |
* Catch-up contributions can be made any time during the year in which the HSA participant turns 55. ** Unlike other limits, the HSA catch-up contribution amount is not indexed; any increase would require statutory change. | |||
An HSA is always in an individual's name. There are no joint HSAs, even when the HSA is linked to a family coverage HDHP and subject to the higher family coverage contribution limit.
Some employer plans include an "employee plus one" tier in addition to self-only and family coverage. An "employee plus one"—such as an eligible employee and her dependent child—would fall under the HSA family coverage limits.
Penalties for Nonqualified Expenses
Those under age 65 (unless totally and permanently disabled) who use HSA funds for nonqualified medical expenses face a penalty of 20 percent of the funds used for such expenses. Funds spent for nonqualified purposes are also subject to income tax.
Affordable Care Act Limits Differ
A frequent source of confusion are the two sets of limits on out-of-pocket expenses that employers should keep in mind.
Starting in 2015, out-of-pocket or cost-sharing limits under the Affordable Care Act (ACA) were slightly higher than the IRS's out-of-pocket limits on HSA-qualified HDHPs. That's because the Department of Health and Human Services (HHS) uses a premium-adjustment percentage method—based on a projection of annual increases in per enrollee employer-sponsored insurance premiums—to modify the maximum out-of-pocket limit for ACA-compliant plans. Grandfathered plans are not subject to the ACA's cost-sharing limits. The IRS, however, uses the consumer price index to adjust its out-of-pocket limit for HSA-eligible HDHPs.
HHS published its 2017 ACA out-of-pocket limits in the Federal Register on March 8, 2016, in its Notice of Benefit and Payment Parameters for 2017 final rule.
| 2017 | 2016 |
Out-of-pocket limits for ACA-compliant plans (set by HHS) | Self-only: $7,150 Family: $14,300 | Self-only: $6,850 Family: $13,700 |
Out-of-pocket limits for HSA-qualified HDHPs (set by IRS) | Self-only: $6,550 Family: $13,100 | Self-only: $6,550 Family: $13,100 |
"Note that the ACA's cost-sharing limit is higher than the out-of-pocket maximum for HDHPs. In order for a health plan to qualify as an HDHP, the plan must comply with the lower out-of-pocket maximum limit for HDHPs," advises a legislative brief by the Stellar Benefits Group in Solon, Ohio.
The HHS's Notice of Benefit and Payment Parameters final rule clarifies that, as in 2016, the ACA's self-only annual limit on cost-sharing for 2017 applies to each covered individual, regardless of whether the individual is enrolled in self-only coverage or family coverage.
Coverage of Adult Children
While the Affordable Care Act allows parents to add their adult children (up to age 26) to their health plans, the IRS has not changed its definition of a dependent for health savings accounts. This means that an employee whose 24-year-old child is covered on her HSA-qualified health plan is not eligible to use HSA funds to pay that child's medical bills.
If account holders can't claim a child as a dependent on their tax returns, then they can't spend HSA dollars on services provided to that child. According to the IRS definition, a dependent is a qualifying child (daughter, son, stepchild, sibling or stepsibling, or any descendant of these) who:
- Has the same principal place of abode as the covered employee for more than one-half of the taxable year.
- Has not provided more than one-half of his or her own support during the taxable year.
- Is not yet 19 (or, if a student, not yet 24) at the end of the tax year, or is permanently and totally disabled.
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