HSA contribution limits for 2020 have increased, in comparison to 2019. The minimum deductible and out-of-pocket maximum limits for high deductible health plans have also increased for 2020.
Health Savings accounts (HSAs) are a popular type of tax-advantage medical savings account available to individuals enrolled in a high deductible health plan (HDHP).
Individuals can use their HSAs to pay for expenses covered under the HDHP until their deductible has been met, or they can use their HSAs to pay for qualified medical expenses that are not covered under the HDHP, such as dental or vision expenses.
HSAs provide a triple tax advantage.
- Interest and earnings
- Amounts distributed for qualified medical expenses
All of these above are exempt from federal income tax, Social Security / Medicare tax and most state income taxes.
Due to an HSA’s potential tax savings, federal tax law includes strict rules for HSAs, including limits on annual contributions and HDHP cost sharing.
The following chart shows the HSA limits that apply for 2020, along with the 2019 limits for comparison purposes.
HSA Contribution Limits for 2020
HSA Changes Related to COVID-19 Pandemic
The following changes related to the COVID-19 global pandemic impact HSAs for 2020:
- Effective January 1, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) provides that over-the-counter (OTC) medicines and drugs are qualified medical expenses that may be paid for by an HSA on a tax-free basis, regardless of whether the medicine or drug is prescribed. In addition, menstrual care products are qualifying medical expenses that may be paid for on a tax-free basis by an HSA (as of Jan 1, 2020)
- Effective March 27, 2020, the CARES Act allows HDHPs to provide benefits for telehealth or other remote care services before plan deductibles have been met, for plan years beginning before Jan 1, 2022.
- Effective March 18, 2020, the Families First Coronavirus Response Act (FFCRA) requires group health plans and health insurance issuers to cover COVID-19 testing without imposing any cost sharing (such as deductibles, copayments or coinsurance) or prior authorization or other medical management requirements. IRS Notice 2020-15 confirms that HDHPs can pay for COVID-19 testing and treatment before plan deductibles have been met, without jeopardizing their status as HSA-compatible.
Questions on HSA Limits for 2020?
Sometimes it feels like compliance rules and regulations are changing by the minute.
If you need help understanding your HSA, or determining if an HSA is a valuable option for your employees, let’s talk.