2023 HSA contribution limits

A health savings account (HSA) is a tax-advantaged savings account that a family or eligible individual can use to pay for their qualified medical expenses. HSAs are paired with a qualifying high-deductible health plan (HDHP) to help offset healthcare costs. Eligible expenses include medical, prescription, dental, or vision care services not covered by your individual or employer-sponsored plan. Each year, the IRS adjusts the annual contribution limit, annual deductible amounts, and other limits for HSAs.

In this article, we'll go over the 2023 HSA contribution limits, HSA-qualified HDHPs, and eligibility requirements determined by the IRS.

Use our chart to learn how a health savings account compares to flexible spending accounts and health reimbursement arrangements

What are the HSA contribution limits for 2023?

Investing in your HSA makes handling the expected and unexpected medical expenses that life throws your way easier. For that reason, many people choose to contribute as much as possible to their HSA. But if you go over the annual maximum limit, you could end up with excess contributions.

The IRS released the 2023 HSA guidelines in Revenue Procedure 2022-24¹. Here are the contribution limits:

Your voluntary contributions to your HSA are either tax-deductible or pre-tax if your employer takes the money out as a payroll deduction. Any unused amounts in your HSA roll over from year to year, and rollover contributions don't reduce your overall contribution limit for the year. To contribute to an HSA, you must be enrolled in an eligible health plan. You can’t be enrolled in Medicare or be claimed as a dependent on someone else's tax return.

How HSA contribution limits work

The limit on contributions is based on the calendar year, meaning allowable contributions are prorated by the number of months an individual is eligible to contribute to an HSA. If you are 55 or older by the end of the year, you can make an additional $1,000 catch-up contribution to your HSA. The IRS also has a special rule for married people who have coverage together under an HDHP. If you are married, and both of you are 55 or older, then you and your spouse can each make an additional contribution of $1,000.

For example, an eligible individual with coverage who has an HSA for seven months during the 2023 tax year can only contribute up to $2,245 in 2023 ($3,850 ÷ 12 × 7). The additional catch-up contribution is also prorated, so those aged 55 and over can only make an additional contribution of $583, using the same example above.

Under the last-month rule by the IRS, if you’re an eligible individual on the first day of the last month of your tax year, then you're considered an eligible individual for the entire year.

HSA tax penalties

While there are tax benefits to an HSA, you could face a tax penalty if you exceed the annual maximum contribution limit or use your HSA funds for ineligible expenses.

You would have to pay a 6% excise tax on excess contributions in the year you overcontributed if you don’t withdraw the amount from your HSA before the tax filing deadline. Otherwise, the tax will apply to each year the excess contribution remains in your account. On top of the excise tax, the excess contribution would also be considered taxable income and can't be counted as a tax deduction when you file.

If you use the funds in your HSA for ineligible expenses, expect to spend more of your hard-earned money along with it. According to Fidelity Investments², if you're under 65, you'll be charged a 20% penalty and any applicable income taxes on what you withdraw. If you're 65 and over, you'll be able to use your HSA funds for ineligible expenses without a penalty. Still, you must pay income taxes on the money you spend.

What are the HDHP guidelines for 2023?

To be what the IRS considers an eligible individual for an HSA, you must be covered by a health insurance plan that qualifies as an HDHP. The guidelines for HDHP qualification are adjusted each year according to minimum deductibles and maximum out-of-pocket limits, reflecting the highest amount a plan holder would have to pay on their own for out-of-pocket medical costs.

The IRS requires health insurance coverage to reflect the following amounts to qualify as an HDHP in 2023:

How do the new limits and guidelines compare with previous years’ limits?

Given the rising inflation rate across the country, the IRS has consistently increased its limits to help mitigate its effects on health coverage. However, the increases to the 2023 limits are much higher than in years past.

2022 HSA limits went up by $50 for eligible individuals with self-only health coverage and by $100 for eligible individuals with family coverage, compared with 2021 limits. When the 2023 guidelines were released, the limits rose another $200 and $450, respectively—much higher than the average increases.

For 2022, the minimum annual deductibles on HDHPs remained the same from 2021's limits, while out-of-pocket maximums increased by $50 for eligible individual coverage and by $100 for those with family coverage.

For 2023, the minimum annual deductible went up by $100 for eligible individual coverage and $200 for family coverage. The highest increase is with the maximum out-of-pocket amounts, where the limits rose $450 for individuals with self-only coverage and $900 for those with family coverage.

Here's a chart to compare HSA single and family contribution limits for 2022 and 2023:

Can I combine an HSA with other health coverage benefits?

HSAs are an increasingly popular tax savings tool. Employer contributions toward their employees' HSAs can be a valuable part of employee health plans, helping them save even more on their out-of-pocket expenses for services.

However, HSAs are even more valuable when combined with a health reimbursement arrangement (HRA). With an HRA, an employer can offer their employees a set amount of tax-free money to reimburse their eligible healthcare expenses.

There’s an HRA for every organization’s size and budget. The qualified small employer HRA (QSEHRA) is made for small businesses with fewer than 50 full-time equivalent employees, while the individual coverage HRA (ICHRA) works for employers of all sizes. A group coverage HRA (GCHRA) is used by organizations that already offer health insurance plans. This option is an excellent alternative to an HSA for employers wanting to make their overall benefits package more competitive.

If you have the option to pair HRA with an HSA, you’ll need to alter your HRA to conform with HSA requirements. You’ll need to ensure that you have a limited-purpose QSEHRA that can only reimburse health insurance premiums, dental and vision expenses, and long-term care premiums.

Conclusion

HSAs are paired with a qualifying HDHP to make healthcare coverage more affordable. All employers and employees can make income tax-free contributions to an HSA, but the IRS sets annual limits on contributions. If you have excess contributions, you will face an excise tax.

When you understand the HSA contribution rules and deductible limits, you can make the most of the medical care benefit. This allows you and your employees to maximize contributions, get tax benefits, and save on out-of-pocket expenses. Investing in your employees' health benefits is the best way to show them you care about their health and well-being, as well as their financial future, while helping you recruit and retain top talent.

At PeopleKeep, we’re experts on HRA administration. Set up a call now with one of our personalized benefits advisors to get started!

This article was originally published on May 19, 2021. It was last updated on April 4, 2023.