IRS Issues 2020 Inflation-Adjusted Amounts For Health Savings Accounts

In a new Revenue Procedure (Rev Proc 2019-25, 2019-22 IRB), the IRS has provided the 2020 inflation-adjusted contribution, deductible, and out-of-pocket expense limits for health savings accounts (HSAs). 

HSA basics. 

Eligible individuals may, subject to statutory limits, make deductible contributions to an HSA. Employers and other persons (e.g., family members) also may contribute to an HSA on behalf of an eligible individual. Generally, employer contributions are treated as employer-provided coverage for medical expenses under an accident or health plan and are excludable from income.

In general, a person is an "eligible individual" if he or she is covered under a high deductible health plan (HDHP) and is not covered under any other health plan, unless the other coverage is permitted insurance (e.g., for worker's compensation, a specified disease or illness, or providing a fixed payment for hospitalization). General purpose health accounts, such as flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs), constitute "other coverage" that will usually preclude HSA eligibility. However, exceptions apply for, among other things, FSAs and HRAs that provide only certain benefits, such as dental and vision, and those imposing high annual deductibles.

HSA distributions not used to pay for qualifying medical expenses generally are included in income and are subject to a 10% penalty tax.

Annual contribution limitations for 2020. 

For calendar year 2020, the limitation on deductions under Code Sec. 223(b)(2)(A) for an individual with self-only coverage under an HDHP is $3,550 (up from $3,500 for 2019). For calendar year 2020, the limitation on deductions under Code Sec. 223(b)(2)(B) for an individual with family coverage under an HDHP is $7,100 (up from $7,000 for 2019).

HDHP for 2020. For calendar year 2020, an HDHP is defined under Code Sec. 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,400 (up from $1,350 for 2019) for self-only coverage or $2,800 (up from $2,700 for 2019) for family coverage, and with respect to which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, not including premiums) do not exceed $6,900 (up from $6,750 for 2019) for self-only coverage or $13,800 (up from $13,500 for 2019) for family coverage. 

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