To determine coverage for HSA contributions, it's necessary to meet the criteria for a High-Deductible Health Plan (HDHP). Here are some rules to adhere to:
- To qualify for an HDHP, you must be enrolled in a health insurance plan that qualifies as an HDHP. The plan needs to have a minimum deductible and maximum out-of-pocket limit that is set by the IRS.
- Enrolling in a health plan other than an HDHP, such as a spouse's plan, Medicare, or TRICARE, is prohibited.
- You are only eligible for this program if you don't have any other medical savings accounts such as a Flexible Spending Account (FSA) or Health Reimbursement Account (HRA).
- Those who are 55 years or older can make an extra catch-up contribution to their HSA.
- For the 2024 tax year, the maximum contribution limit for family coverage is $8,300, while for individuals it is $4,150. You are able to add an extra $1,000 as a catch-up contribution if you are 55 or older.
Here is an illustration for an explanation of HSA calculation:
Grace, who is 28, opened a HSA in 2024 and contributed the maximum amount. During the year, $3,000 in medical expenses were paid by her. The marginal tax rate she pays is 20%. What is the difference between Grace's medical expenses after taxes and those before taxes?
The maximum allowed annual contribution to an HSA is $4,150 for 2024 taxpayers who are under age 55. Her after-tax cost is zero compared to her before-tax cost because Grace has a tax-deductible HSA that covers all of her medical expenses.
