The Internal Revenue Service has announced the new contribution limits to health savings accounts for tax year 2017. They also confirmed that the limitations and deductible guidelines on high deductible health plans will remain unchanged for tax year 2017.
Health savings accounts, or HSAs, are tax-advantaged savings accounts that individuals and families can use to save money pretax to fund future medical expenses. However, taxpayers may only contribute to these HSAs if they are covered by a qualified high deductible health plan, or HDHP.
HSA Contribution Limits
The new HSA contribution limit for 2017 is $3,400 for individual coverage. This is an increase of $50 from the 2016 maximum contribution amount.
For family plans, the maximum HSA contribution limit for 2017 is unchanged from 2016 levels, at $6,750.
Taxpayers age 55 and older are eligible for an additional catch-up contribution of $1,000 per year in 2017. That figure is unchanged from 2016. Catch-up contributions may be made at any time during the year in which a health savings account participant turns age 55.
High Deductible Health Plan Minimum Deductibles
For tax year 2017, the minimum deductible for an individual only high-deductible health plan is $1,300.
For family coverage, the minimum allowable deductible for a family high-deductible health plan in 2017 is $2,600. Again, both numbers are unchanged from 2016 levels.
High-Deductible Health Plan Maximum Out-Of-Pocket Amounts
High-deductible health plans are subject to maximum amounts that covered individuals and families may be required to pay out of pocket for covered medical services. The maximum out-of-pocket levels apply to deductibles paid, copays, coinsurance costs and other fees. Premiums, however, are not included in the maximum out-of-pocket cost rules.
For individual plans, the maximum out of pocket cost for HDHPs is capped at $6,550.
For family plans, the maximum out of pocket costs for HDHPs is capped at $13,100.
Again, both numbers are unchanged from 2016 levels.
Nonqualified Expenses
While assets in HSAs enjoy tax-free growth if used for qualified medical expenses, the IRS charges a substantial penalty of 20 percent for any funds you withdraw prior to age 65 for any other reasons, unless the participant is totally or permanently disabled. This 20 percent is in addition to any income tax you may owe on the amount withdrawn.
Adult Children
If you cannot claim a child on your individual tax return as a dependent, you generally cannot include them as family members for the purposes of administering a health savings account or high deductible health plan. That means you cannot spend HSA money on health services for adult children who are no longer dependents without being subject to taxes and penalties for nonqualified expenses.
Generally, once a child turns age 19, he or she may be considered a dependent only under the following circumstances:
The individual has had the same principal residence as the covered employee for 181 or more days during the year, has not provided more than one half of his or her own support during the tax year, and is not yet 19, or if a student, not yet 24, or is permanently and totally disabled.
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