For those enrolled in high-deductible, low-premium healthcare plans, a major challenge remains: Meeting the deductible can strain some budgets, even while enjoy the benefits of a roomier monthly budget. To help with that problem, health savings accounts and health reimbursement arrangements were created to provide non-taxed funds for out-of-pocket healthcare expenses.
Each year, an employee can contribute a certain amount of money to a HSA on a pre-tax basis. This means the funds can be diverted from their paychecks to the account before taxes are calculated, effectively lowering the amount they owe to the IRS each year.
With a HRA, the account is funded by the employer rather than the employee. But the funds are provided to the employee free of taxes.
Either type of account essentially allows the employee to cover their out-of-pocket healthcare expenses with income that is not taxed by the IRS. And in response to the rising cost of healthcare, the IRS occasionally raises the limits on these accounts, allowing employees to stash a bit more money for their expenses.
Next year, the savings limit for a single person’s HSA will be raised from $3,650 in 2022 to $3,850 in 2023. For family coverage, the limit will grow from $7,300 in 2022 to $7,750 next year. For those over age 50, the catch-up contribution to HSAs will remain the same at $1,000.
It’s important to remember that unused HSA funds roll over from one year to the next, and even carry over into retirement.So those who are already maxing out their retirement plan contributions can actually utilize a HSA to save even more for the future, and even use the account to cover Medicare premiums or other healthcare expenses in retirement someday.
As for HRAs, the annual contribution limit will climb from $1,800 this year to $1,950 next year. Employers will be able to help their employees just a bit more.
For more information on establishing a HSA or HRA, call us to speak with one of our group benefits experts.