Higher Limits for HSA Contributions in 2014

The IRS has announced higher limits for 2014 contributions to health savings accounts (HSAs).The increased amounts reflect cost of living adjustments.

For 2014, the HSA contribution limit is $3300 for an individual and $6550 for a family. The HSA catch up contribution for those age 55 or older will remain at $1000. For an medical plan to be considered a qualified HDHP that can be paired with an HSA, it must have a minimum deductible of $1250 for an individual and $2500 for a family.

For those under age 65 (unless totally and permanently disabled) who use HSA funds for nonqualified medical expenses, they face a 20% penalty of 20% for nonqualified expenses. Funds spent for nonqualified purposes are also subject to income tax.

While the PPACA allows parents to add their adult children up to age 26 onto their medical plans, the IRS has not changed its definition of a dependent for HSAs. This means that an employee whose 24 year old child is covered on his HSA qualified high deductible health plan is not eligible to use HSA funds to pay for that child’s medical bills. If HSA account holders can’t claim a child as a dependent on their tax returns, then they can not spend HSA dollars on services provided to that child. According to the IRS definition, a dependent is a qualifying child (daughter, son, stepchild, sibling or stepsibling, or any descendent of these) who:

• has the same principal place of residency as the covered employee for more than ½ of the taxable year
• has not provided more than ½ of his or her own support during the taxable year
• is not yet 19 (or, if a student, not yet 24) at the end of the tax year or is permanently disabled

Please contact our office with questions on high deductible health plans (HDHPs) as well as Health Saving Accounts (HSAs).