The IRS recently announced the Health Savings Account (HSA) rules and requirements for 2016. This article reviews the HSA contribution limits, HDHP minimum required deductibles, and out-of-pocket maximums for 2016, as set annually by the Internal Revenue Service (IRS).
2016 Annual HSA Contribution Limits
For calendar year 2016, the annual HSA contribution limits are:
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Individuals (self-only coverage) - $3,350 (no change from 2015)
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Family coverage - $6,750 (up $100 from 2015)
2016 HDHP Minimum Required Deductibles
For calendar year 2016, the High Deductible Health Plan (HDHP) required deductibles for an HSA are:
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$1,300 for self-only coverage (no change from 2015)
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$2,600 for family coverage (no change from 2015)
2016 HDHP Out-of-Pocket Maximum
The annual out-of-pocket expenses include deductibles, co-payments, and other amounts, but not premiums.
For calendar year 2016, the out-of-pocket maximums are:
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$6,550 for self-only coverage (up $100 from 2015)
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$13,100 for family coverage (up $200 from 2015)
If you use an HSA to pay for unqualified medical expenses, the tax penalty is 20% of the HSA distribution.
Related - IRS Publication 969 - Guidelines for HSAs, HRAs, MSAs, and FSAs
Background on Health Savings Accounts
Health Savings Accounts, or HSAs, are a popular type of medical reimbursement plan. HSAs are individual bank accounts owned by employees that allow for tax-free payment or reimbursement of eligible medical expenses. An employer usually offers an HSA-qualified high-deductible health plan and an HSA.
U.S. federal regulations require citizens to have a minimum deductible on their health insurance from all sources in order to make tax-deductible contributions to their Health Savings Accounts (HSA).
Related - Health Savings Accounts (HSAs) - 10 FAQs
HSAs combine the benefits of both traditional and Roth 401(k)s and IRAs for medical expenses. Taxpayers receive a 100% income tax deduction on annual contributions, they may withdraw HSA funds tax-free to reimburse themselves for qualified medical expenses, and they may defer taking such reimbursements indefinitely without penalties.
HSAs are unique—“IRAs on Steroids”—with triple tax advantages:
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Tax-deductible contributions,
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Tax-free accumulation of interest and dividends tax-free, and
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Tax-free distributions for qualified medical expenses.
The 2016 HSA guidelines were released by the IRS in Revenue Procedure 2015-30.
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