21 May 2020

Background. A “health savings account” (HSA) is a trust created or organized in the U.S. exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary”. (Code Sec. 223(d)(1))

An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high deductible health plan.” (Code Sec. 223(c)(1))

Generally, a high deductible health plan (HDHP) is a health plan which has an annual deductible that is not less than $1,000 for self-only coverage, and $2,000 for family coverage. In addition, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) cannot not exceed $5,000 for self-only coverage, and $10,000 for family coverage. (Code Sec. 223(c)(2)(A))

Within specified dollar limits, an above-the-line deduction is allowed for an individual’s contribution to an HSA (annual contribution limitation). (Code Sec. 223(b)(2)(A))

The annual contribution limitation and the annual deductible and out-of-pocket expenses under Code Sec. 223(c)(2)(A) are adjusted annually for inflation. (Rev Proc 2019-25, 2019-25 IRB 1261)

Inflation adjustments for contributions to HSAs in 2021. The IRS has released the 2021 inflation-adjusted figures for contributions to HSAs, which are as follows:

Annual contribution limitation. For calendar year 2021, the annual contribution limitation under Code Sec. 223(b)(2)(A) for an individual with self-only coverage under a HDHP is $3,600; the amount is $7,200 for an individual with family coverage.

High deductible health plan defined. For calendar year 2021, an HDHP is a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage, and annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) that do not exceed $7,000 for self-only coverage or $14,000 for family coverage.