For many, health savings accounts (HSAs) are a way to pay taxable medical bills. You can deduct your benefactions to an HSA (even if you do not specify it), your employer's contributions are excluded from gross income, earnings are tax-free, and distributions are not taxable if you use them to pay the taxes fees of a qualified doctor. Also, it is possible to keep your account after years of work and use it for free for medical expenses during retirement. In general, HSA can be a great tool to cover health costs.
However, there are certain limitations and HSA requirements that are adjusted each year based on inflation. They apply to the deductible minimum of the health insurance plan, the annual expenses, and the amount that can be paid to an HSA for this year. If you do not comply with the restrictions in any given year, you may be prone to the HSA tax savings that year.
The Internal Revenue Service (IRS) has disclosed the annual limits for health savings accounts (HSAs) for 2020.
HSAs are pre-tax accounts available for those with a high deductible health plan. Eligible persons can accumulate tax-free cash at HSA to pay qualified medical expenses. The HSA limits, indexed each year to inflation, will increase in 2020.
The HSA's maximum annual contribution for 2020 is as follows:
In order to partake in an HSA, the insured must, among other requirements, be enrolled in a highly qualified HSA health plan with minimum annual deductibility (not applicable to prevention services).
For the calendar year 2020, a high deductible health care plan is defined as a health care plan with a minimum annual deduction of:
The maximum annual expenditure (deductible, refunds and other amounts, but not bonuses) also increased in 2020.
By 2020, the maximum amount of payments will not exceed:
In the end, your contributions to an HSA are also limited each year. You can contribute up to $3,550 in 2020 if you have self-service coverage or up to $7,100 for family coverage ($3,500 and $7,000 respectively by 2019). If you are 55 or older by the end of the year, you can contribute an additional $1,000 in 2020 (as in 2019). However, the contribution limit is reduced by the number of contributions paid by the employer, which can be excluded from your income, including amounts paid into the HSA account through a cafeteria plan.
You can spend a little more money before taxing your medical expenses next year.
The new Health Savings Accounts for 2020 (HSA) increase by $50 for individual coverage and $100 for family coverage, the IRS announced, raising $3,550 and $7,100 respectively. The contribution limit for those over 55 will remain at $1,000.
HSAs are linked to high deductible health plans (HDHPs). Also, this year's HDHP annual payments in 2020 are slightly higher than this year: they cannot exceed $6,900 for single-benefit coverage or $13,800 for family coverage.
Contribution limits are linked to inflation, although rising medical costs outweigh inflation every year.
HSA offers three tax benefits:
1. Contributions are deductible: as in a 401(k) account, you contribute to an HSA with a gross tax that reduces taxable income for the year.
2. Profits increase without tax: you can invest HSA's contributions and earn interest-free.
3. You can withdraw tax-free money if it is used for eligible medical expenses. You can find a list of these costs on the IRS website or ask your service provider for a list.
Unlike Flexible Spending (FSA), the money you contribute to an HSA does not expire. If you do not use it during the year in which you contributed, you can continue to do so even if you get a new job. This makes HSA particularly useful as a secondary vehicle for retirement savings.
