IRS Issues 2016 HSA Contribution Limits Allowable contributions for family coverage up, along with out-of-pocket maximum for high-deductible plans By Stephen Miller, CEBS 5/6/2015 Permissions Update: For 2017, health savings account contribution limits for individual (self-only) coverage will increase by $50; most other HSA-related limits, including for HSAs linked to family coverage, remain unchanged from 2016. See the SHRM Online article IRS Sets 2017 HSA Limits. The Internal Revenue Service (IRS) announced limits for 2016 on contributions to health savings accounts (HSAs) and for out-of-pocket spending under high-deductible health plans (HDHPs) linked to them. In Revenue Procedure 2015-30, issued May 5, 2015, the IRS provided the inflation-adjusted HSA contribution and HDHP minimum deductible and out-of-pocket limits, effective for calendar year 2016. The higher rates reflect a cost-of-living adjustment and rounding rules under Internal Revenue Code Section 223. A comparison of the 2016 and 2015 limits is shown below: Contribution and Out-of-Pocket Limits for Health Savings Accounts and High-Deductible Health Plans For 2016 For 2015 Change HSA contribution limit (employer + employee) Individual: $3,350 Family: $6,750 Individual: $3,350 Family: $6,650 Individual: no change Family: +$100 HSA catch-up contributions (age 55 or older)* $1,000 $1,000 No change** HDHP minimum deductibles Individual: $1,300 Family: $2,600 Individual: $1,300 Family: $2,600 Individual: no change Family: no change HDHP maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums) Individual: $6,550 Family: $13,100 Individual: $6,450 Family: $12,900 Individual: +$100 Family: +$200 * Catch-up contributions can be made any time during the year in which the HSA participant turns 55. ** Unlike other limits, the HSA catch-up contribution amount is not indexed; any increase would require statutory change. The lack of increases for individual contributions and modest increases for family contributions reflect the government's calculation of a continuing tepid inflation rate. Penalties for Nonqualified Expenses Those under age 65 (unless totally and permanently disabled) who use HSA funds for nonqualified medical expenses face a penalty of 20 percent of the funds used for such expenses. Funds spent for nonqualified purposes are also subject to income tax. Dependent Children While the Affordable Care Act allows parents to add their adult children (up to age 26) to their health plans, the IRS definition of a qualified dependent (child or relative) who may be covered under an employee's HSA is different. This means, for instance, that an employee whose 24-year-old child is covered on his HSA-qualified high-deductible health plan may not be eligible to use HSA funds to pay that child's medical bills (unless the child is a full-time student, and therefore a qualified dependent for tax purposes). Affordable Care Act Limits Differ Starting in 2015, out-of-pocket limits for HDHPs under the Affordable Care Act (ACA) were slightly higher than the IRS’s limits on HSA-qualified HDHPs. But the IRS limits are what determine if an HDHP is HSA-compliant for tax purposes. The Department of Health and Human Services published its 2016 ACA out-of-pocket limits for HDHPs in the Federal Register at the end of February 2015, in its Notice of Benefit and Payment Parameters for 2016. 2016 2015 ACA out-of-pocket limits for HDHPs Individual: $6,850 Family: $13,700 Individual: $6,600 Family: $13,200 IRS out-of-pocket limits for HSA-qualified HDHPs Individual: $6,550 Family: $13,100 Individual: $6,450 Family:$12,900 “The ACA limits are based on the out-of-pocket limits for high-deductible health plans (although the method of indexing the limits for inflation is different, with the result that the dollar amounts don’t match),” according to an analysis by Covington, an employment law firm. Moreover, the ACA limits “apply to all nongrandfathered group health plans, including (but not limited to) HDHPs.” A May 7, 2015, FYI alert from Buck Consultants noted that, regarding the ACA-specific limits, “under recent guidance from the Department of Health and Human Services, a plan must apply the annual limitation on cost sharing for self-only coverage to OOP [out-of-pocket] maximums for each individual in a family plan—even if this amount is below the family OOP maximum.” However, “Employers offering HSA/HDHP plans will need to ensure they satisfy the lower IRS out-of-pocket maximums for HDHPs,” not the higher ACA limits, Buck Consutlants advised. “Plan sponsors should review current and proposed HSA/HDHP arrangements, and update plan documents and enrollment materials as needed to reflect the new limits.” Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller. Related SHRM Articles—2016 Benefit Rates: For 2016, Most Retirement Plan Limits Stay Put, SHRM Online Benefits, October 2015 2016 Limits for Commuting, Adoption, FSAs and Other Plans, SHRM Online Benefits, October 2015 2016 Payroll Tax Unchanged; Tax Brackets Nudge Up, SHRM Online Compensation, October 2015 Related SHRM Articles—HSAs and High-Deductible Plans: Family Plans Must ‘Embed’ Out-of-Pocket Limits in 2016, SHRM Online Benefits, June 2015 CDHP Cost-Savings Maintained over Time, Researchers Find, SHRM Online Benefits, March 2015 Contributions to HSAs Vary by Employer Size, Region, Industry, SHRM Online Benefits, March 2015 Health Care Consumerism: HSAs and HRAs, SHRM Online Benefits, December 2014 Quick Links: SHRM Online Benefits Topics & Strategy SHRM Online Health Care Reform Resource Page SHRM Online Wellness Programs Resource Page Compensation & Benefits e-Newsletter: To subscribe to SHRM's Compensation & Benefits e-newsletter, click below. 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