08/06/2013

IRS announces 2014 HSA and Out-of-pocket expense limits.

Reflecting adjustments for inflation and cost of living, the limits for contributions to health savings accounts (HSAs) and out-of-pocket spending under high-deductible health plans (HDHPs) will increase in 2014.

Announced by the Internal Revenue Service (IRS) on May 2nd, the adjustments will raise HSA contribution limits from $3,250 in 2013 to $3,300 for individuals with self-only coverage, and from $6,450 to $6,550 for family coverage. HSA catch-up contributions for age 55 and older will remain at $1,000.

As for HDHP maximum out-of-pocket expenses, which include deductibles, co-payments and other amounts other than premiums, limits will increase from $6,250 to $6,350 for individuals and from $12,500 to $12,700 for families. There will be no change in HDHP minimum deductibles, which are limited to $1,250 for individuals and $2,500 for families.

The increases of $50 in contribution limits for individuals and $100 for families, and $100 and $200 for out-of-pocket maximums are slightly lower than those from 2012 to 2013 because of the similarly lower inflation rate calculated for 2014. In the previous year, the high inflation rate caused contribution limits to increase by $150 for individuals and $200 for families; maximum out-of-pocket spending by $200 and $400; and HDHP minimum deductibles by $50 and $100.

Contributors younger than 65 years old, with the exception of the disabled, must be reminded to use their HSA funds strictly for qualified medical expenses. Non-qualified spending will be subjected not only to a 20 percent penalty but also to income tax.

Critical awareness should be practiced particularly by parents who plan to include their adult children in their medical coverage. Under the Patient Protection and Affordable Care Act (PPACA), also known as Obamacare or the Affordable Care Act (ACA), parents can add children as old as 26 years old to their plans. Parents must ensure, however, that their children are qualified as a “dependent” based on IRS’ restrictions – otherwise, their medical bills may not be covered by HSA funds.

As defined by the IRS, qualified dependents may be a daughter, son, stepchild, sibling or stepsibling, or descendant of these. They must live in the same place as the covered employee for more than half the taxable year, and not be able to provide more than half of their own support within that period. If not permanently or totally disabled, they must also be under 19 years old – or under 24 years old if a student – by the end of the taxable year.

For more information, the announcement from the IRS can be viewed at www.irs.gov/pub/irs-drop/rp-13-25.pdf.