In Rev. Proc. 2021-25, the IRS announced the 2022 contribution limits for HSAs.
Think of an HSA, or Health Savings Account, as an IRA for medical expenses. It is a savings account owned by an individual to accumulate funds to pay medical expenses not covered by insurance, such as deductibles and copays. Like an IRA, it is funded with pre-tax contributions made by the account owner and can be invested and grows tax-free.
However, unlike an IRA, the owner can withdraw funds without penalty at any age, as long as the withdrawals are used to pay qualified medical expenses. Withdrawals for anything other than qualified medical expenses are taxed and are subject to a penalty of twenty-percent if taken before age 65. Funds not used in any year roll over to subsequent years.
An HSA may be offered by an individual’s employer. In the alternative, an individual can create an HSA through a bank or other custodian. Contributions are tax-deductible but are limited.
An HSA is a great option for the right person. However, it is only available to individuals covered by a High-Deductible Health Plan.
A “High-Deductible Health Plan”, or HDHP, is defined in section 223(c)(2) of the Internal Revenue Code as a health plan, including an individual insurance policy, with a higher deductible than a standard health plan. The minimum deductible is determined on an annual basis by the IRS.
Congress thought that increasing deductibles would lower health insurance premiums thus reducing the overall cost of health care. However, to protect the public from catastrophic expenses, section 223(c)(2) also limits the amount of out-of-pocket expenses that an individual may be required to pay under an HDHP.
In the spring of every year, the IRS releases the limits for the next year. The limits for 2022 are found in Rev. Proc. 2021-25. The following chart shows the limits for 2022.
Individual Coverage Family Coverage
Contribution Limit $3,650 $7,300
Deductible $1,400 $2,800
Out-of-Pocket $7,050 $14,100
This means that an HDHP must have a deductible of at least $1,400 for individual coverage and a deductible of at least $2,800 for family coverage. In addition, out-of-pocket expenses in an HDHP may not exceed $7,050 for an individual and $14,100 for a family. Finally, pre-tax contributions to an HSA are limited to $3,650 for an individual and $7,300 for a family.