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HSAs (Health Savings Accounts) are tax-free savings accounts that let employees save and pay for medical expenses. These accounts have several tax advantages, but they’re also governed by Internal Revenue Service (IRS) regulations, so it’s wise to consult with your CPA when planning an HSA for yourself or your employees. Read on to learn more about the deadline for HSA contributions, HSA contribution limits in 2024, and more about how these tax-advantaged accounts can benefit your business and employees.

What is a Health Savings Account (HSA)?

HSAs are savings accounts that enable individuals to set aside pre-tax funds for medical expenses. This type of savings account allows people to use the money in the account to pay for insurance deductibles, copayments, coinsurance, and other out-of-pocket qualified medical expenses.

HSAs are intended to pay for costs related to high-deductible health plans. Contributions to HSAs are tax-deductible. Earnings on HSA accounts are also tax-free. When people withdraw money from HSAs to pay for eligible medical costs, the withdrawals are also tax-free.

HSA Contribution Limits

The IRS specifies contribution limits for HSAs. Although there are annual contribution limits, the amounts in HSAs at the end of each year can roll over from year to year. HSA contributions also increase for employees who are 55 and over: an extra $1,000 each year.

However, it’s important for both employers and employees alike to understand that HSAs which are funded by both the employer and employee should remain within the annual limits set by the IRS.

2023

In 2023, the maximum HSA contributions allowed by the IRS were $3,850 for self-only coverage and $7,750 for families. There is also a $1,000 “catch-up” contribution for eligible taxpayers who are over age 55.

Considerations for 55+ Employees in 2023

If employees are 55 and over, they are allowed to have $4,850 for self-only coverage in 2023 HSA contributions, and up to $8,750 in family HSA contributions.

2024

In 2024, the maximum allowable HSA contributions are $4,150 for self-only coverage and $8,300 for family coverage.

Considerations for 55+ Employees in 2024

Employees over age 55 are allowed to contribute $1,000 over this amount for each type of coverage (self-only or family).

2025

In 2025, the maximum allowable HSA contributions are projected to be $4,250 for self-only coverage and $8,550 for family coverage.

Considerations for 55+ Employees in 2025

Employees over age 55 are projected to still be allowed to contribute $1,000 over this amount for each type of coverage (self-only or family).

Important Deadlines to Remember

One important deadline for HSAs every year is tax day: April 15. Each year, the deadline for HSA contributions for the prior year is tax day. In other words, people can make HSA contributions up to tax day for the prior tax year.

The important deadlines for HSA administration and contributions time frames are tied to the tax year. For example, individuals can make HSA contributions that apply to the 2024 tax year up to April 15, 2025.

the couple reading about the HSA deadlines for 2024

December 1 [or the first day of the last month of the tax year, if the tax year differs]: Employees must be enrolled in an eligible high-deductible health plan (HDHP) as of December 1 (or the first day of the last month of differing tax year such as June 1 or October 1) of any given year in order to be able to contribute the maximum allowable amount. In addition, they must remain enrolled in their HDHP from the first day of the last month of their last month of the tax year until the last day of the 12th month of the tax year (i.e. December 1 of the current year until  December 31 of the following year).

If they are not enrolled for the entire testing period, employees could be subject to paying income tax and could have a 10% penalty for ineligible HSA contributions.

Additional Important Dates

HSAs are tied to health plans, so additional important dates include federal Healthcare Marketplace open enrollment periods. Below are the Marketplace dates that the majority of states follow, yet some states offer extended enrollment periods as noted. 

November 1: Open enrollment starts for health plans in all but one state (Idaho – offering open enrollment starting October 15). 

December 15: The last day that employees can enroll in or change their plan through the health insurance marketplace except for the states with extended enrollment dates (January 31 for California, New Jersey, New York, Rhode Island, and Washington, DC; January 23 for Massachusetts). 

In Illinois, open enrollment begins November 1, 2024, and ends January 15, 2025.

Employees should confirm with their employer or the federal Healthcare Marketplace for their state’s open enrollment periods and deadlines.  

Employee Engagement Through HSA Benefits

One of the key ways HSAs contribute to employee engagement is by fostering financial wellness. As healthcare costs continue to rise, employees appreciate the opportunity to take control of their medical expenses and plan for future healthcare needs. HSAs empower individuals to be proactive about their health, promoting a sense of financial security and stability.

However, many employees may not know what an HSA is or how it could benefit them. You can help your employees participate in an HSA by communicating who is eligible for one. To be an eligible individual and qualify for an HSA contribution, you must meet the following requirements:

  • You are covered under a high-deductible health plan (HDHP) on the first day of the month.
  • You have no other health coverage except what is permitted under “other” health coverage as determined by the IRS.
  • You aren’t enrolled in Medicare and can’t be claimed as a dependent on someone else’s 2024 tax return.

Employees may also not know about the benefits of an HSA for their family members or dependents. They can use HSA contributions to pay for qualified medical costs for you, your spouse, or dependents, whether or not you have a high deductible health plan for yourself only or also for family members. 

Advantages of HSAs for Employees

couple shaking hands with a CPA meeting to discuss HSA Contribution Limits and Deadlines for 2024

Here are some of the advantages of HSAs that you can communicate from year to year:

  • Triple tax advantages: HSA contributions are tax-free, investment earnings are tax-free, and distributions for qualified medical expenses are not taxable.
  • Annual roll-over: HSA amounts roll over from year to year, increasing the account’s total.
  • Portability: If the employee retires or moves to another job, they still have their HSA.

Employers can also make HSA contributions as long as the total HSA amount doesn’t go over the annual IRS limit.

However, a note on tax-free HSA distributions and spending: you can’t deduct qualified medical expenses on your Schedule A (Form 1040) if they are paid directly from your HSA or you are reimbursed from your HSA as a tax-free distribution.

Avoiding Common Mistakes in HSA Planning

Some people use HSAs when they’re not eligible. HSAs are meant for people with high-deductible health plans (HDHPs). The IRS determines which HDHPs are qualified, and insurance providers must document whether their plans meet IRS requirements.

Other common mistakes include using HSA funds to pay for non-eligible expenses like gym memberships and cosmetic surgery. However, as of 2019, the law allows you to use an HSA to pay for over-the-counter medications and menstrual care products. Some people have used HSA funds to pay for non-qualified, non-family member medical care. Finally, without proper planning, it’s possible to exceed the HSA contribution limits each year.

To learn more about how HSAs can benefit your business, financial planning, and employee engagement, contact DHJJ.

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