HSA contribution limits increase for 2021

As is usual this time of the year the IRS advises the tax practitioner community and taxpayers of the upcoming 2019 H.S.A. Contribution limits for the upcoming 2020 (done in 2021) tax year.

The IRS in Rev. Proc. 2020-32 announced the annual inflation-adjusted limits on deductions for contributions to a health savings account (HSA) allowed for taxpayers with family coverage under a high-deductible health plan (HDHP) for calendar year 2021.

Under Sec. 223, individuals who participate in an HDHP are permitted a deduction for contributions to HSAs set up to help pay their medical expenses. The contribution deduction limit is subject to an annual inflation adjustment. To be eligible to contribute to an HSA, an individual must participate in an HDHP, which is a health plan with an annual deductible that is not less than a certain limit each year and for which the annual out-of-pocket expenses, including deductibles, co-payments, and other amounts, but excluding premiums, do not exceed a certain limit each year (Sec. 223(c)).

For 2021, the annual limit on deductible contributions is $3,600 for individuals with self-only coverage under an HDHP (a $50 increase from 2020) and $7,200 for family coverage (a $100 increase from 2020).

The limits on annual deductibles are also subject to annual inflation adjustments. For 2021, the lower limit on the annual deductible for an HDHP is $1,400 for self-only coverage and $2,800 for family coverage, both unchanged from 2020. The upper limit for out-of-pocket expenses is $7,000 for self-only coverage and $14,000 for family coverage, both increased.