IRS Announces Increases for HSAs and HDHPs in 2023

by | Jun 1, 2022

ARTICLE | June 01, 2022

The IRS recently released new contribution limits for 2023 health savings accounts (HSAs) and excepted benefit health reimbursement arrangements (EBHRA) and new requirements for qualifying high deductible health plans (HDHPs) to reflect annual cost of living adjustments. The changes will impact which insurance plans are eligible for an HSA and the amounts that can be contributed to an HSA or EBHRA in 2023. 

This article will provide an overview of an HSA, HDHP, and EBHRA and the changes for the 2023 calendar year.

Health savings account overview

A health savings account, or HSA, is a tax-advantaged savings account that can be used to pay for qualified medical expenses. Contributions to an HSA are made with pretax dollars, and withdrawals are tax-free as long as they are used for qualified expenses. 

While HSAs can only be used in conjunction with HDHPs, not all HDHPs have an HSA option. In other words, it is possible to have a high-deductible health plan without the option of having an HSA, but you can’t have an HSA without a high-deductible health plan.

The primary benefit of an HSA is the ability to pay for medical expenses with pretax dollars. However, there are several additional benefits to using an HSA. Contributions to an HSA reduce adjusted gross income and thus might help a taxpayer fall into a lower tax bracket. Contributions held in an HSA can be invested and grow tax-free similar to a 401(k) or IRA. Finally, any money left in an HSA at the end of the year can be carried over to the next year.  

2023 health savings account contribution limits

The IRS limits the amount that can be contributed to an HSA annually. For single coverage, the annual HSA contribution limit for the 2023 calendar year is $3,850 (up from $3,650 in 2022), and for family coverage, the limit is $7,750 (up from $7,300 in 2022). Plan participants 55 or older can make an additional $1,000 in catchup contributions annually. 

High deductible health plan overview

A high deductible health plan (HDHP) is a type of health insurance with lower premiums and higher deductibles than traditional health insurance plans. The deductible is the amount you must pay for covered medical expenses before your insurance company begins to pay. High deductible health plans generally have lower premiums, but you may have to pay more out-of-pocket costs if you need medical care. You can combine an HSA with many HDHPs to help pay for your deductible and other out-of-pocket expenses with pretax dollars. 

It’s worth noting that not every HDHP offers the ability to use an HSA, and for those that do, opening an HSA is a separate undertaking. When you sign up for an HDHP that allows for an HSA, you have to open the HSA at a financial institution unless provided by your employer.  

2023 high deductible health plan requirements

The IRS sets a minimum annual deductible and out-of-pocket expense limits for health plans to qualify as an HDHP. For 2023, an HDHP must have a deductible of at least $1,500 for an individual (up from $1,400 in 2022) and $3,000 for a family (up from $2,800 in 2022). Additionally, out-of-pocket expenses cannot exceed $7,500 for an individual (up from $7,050 in 2022) and $15,000 for a family (up from $14,100 in 2022). 

2023 excepted benefit health reimbursement arrangement contribution limits

For employers that offer an excepted benefit health reimbursement arrangement (EBHRA), the IRS has set new contribution limits. An EBHRA allows employers to contribute funds to an account that can be used to reimburse an employee for out-of-pocket medical expenses like copays, deductibles, dental and vision coverage, COBRA premiums, and long-term care. For plan years beginning in 2023, the maximum amount that may be made newly available for an excepted-benefit HRA is $1,950 (up from 1,800 in 2022).

Contact our office for more information

This article provides an overview of the new requirements for HSAs, EBHRAs, and HDHPs and is not a substitute for speaking with one of our expert advisors. If you have questions about how you might benefit from an HSA or EBHRA, please contact our office.

This article is provided solely for informational and educational purposes. KHA Accountants, PLLC, its partners and others do not provide any assurance as to the accuracy of this information or its fitfulness for any purpose. As such, KHA Accountants, PLLC cannot be held liable for any information derived from the article or from referenced sources. Consult your legal and business advisors prior to making financial decisions.

Questions or Want to Talk?

Call us directly at 972.221.2500 (Flower Mound) or 940.591.9300 (Denton),
or complete the form below and we’ll contact you to discuss your specific situation.

Ten quick reminders for FTC

Recent FTC guidance and delayed TCJA provisions will likely impact a taxpayer’s ability to take an FTC going forward. Start analyzing the impact now.

Appellate Court affirms Little Sandy

The US Court of Appeals for the Seventh Circuit affirmed a 2021 US Tax Court ruling in Little Sandy, although it diverged from some of the Tax Court’s reasoning.

R&E Expense Amortization Got You Down?

Now that Research & Experimentation expenses must be amortized over several years, many companies are looking for ways to increase deductions and reduce taxable income. Here are three opportunities to potentially accelerate depreciation and reduce your tax liability.

R&D continues its losing streak in court

IRS continues to win cases challenging the research and development (R&D) credit. Specificity and supporting documentation remain tantamount to sustaining R&D credits.