On May 24, 2024, the Internal Revenue Service (IRS) announced new revenue procedures regarding Health Savings Accounts (HSA) contribution limits for 2025. Specifically, Revenue Procedure 2024-25 provides inflation-adjusted limits for HSAs and the maximum amount newly available for excepted benefit health reimbursement arrangements (HRAs). These changes are effective for the calendar year 2025 and apply to excepted benefit HRAs for plan years starting in 2025. Additionally, the IRS has issued guidance on employer reporting for digital asset transactions.
Overview of Health Savings Accounts (HSAs)
In accordance with Section 223 of the Internal Revenue Code (IRC), eligible individuals can establish HSAs. These accounts allow individuals to allocate funds on a pre-tax basis to cover eligible medical expenses. These expenses include:
- Deductibles
- Copayments
- Coinsurance
- Other medical expenses
HSA funds are generally restricted from being used to pay insurance premiums. Instead, contributions to an HSA must be made through a High Deductible Health Plan (HDHP). HDHP is a type of health insurance plan that generally covers only preventive services until the deductible is met. This means that most medical expenses must be paid out-of-pocket until the deductible is reached. HDHPs are designed to encourage individuals to save money in their HSAs to cover these initial costs, ensuring that they have funds available for unexpected medical expenses. By doing so, individuals can manage their healthcare expenses more effectively while also benefiting from the tax advantages offered by HSAs.
2025 HSA Contribution Limits
According to Section 223 of the IRC, the IRS adjusts HSA limits annually for inflation. For the calendar year 2025, the IRS has made the following cost-of-living adjustments:
- HDHP Minimum Deductible: Increased to $1,650 for self-only coverage and $3,300 for family coverage (up from $1,600 and $3,200, respectively).
- Annual Out-of-Pocket Expenses: Cannot exceed $8,300 for self-only coverage and $16,600 for family coverage.
- Limitations on Deductions: Increased to $4,300 for individuals with self-only coverage and $8,550 for family coverage (up from $4,150 and $8,300, respectively).
- Excepted-Benefit HRA: The maximum amount newly available for the plan year is $2,150.
Employer Takeaways in HSA Contribution Limits
Employers sponsoring health and welfare plans should adjust their administrative and operational procedures to align with the new limits. It is essential for employers to retain employee benefit plan records for at least six years after filing, as required by the Employee Retirement Income Security Act (ERISA). However, you should retain health care benefit records related to HSAs for at least three years, in case of an IRS audit.
For further information regarding the 2025 HSA contribution limits and inflation adjustments, employers can contact Scout Tax. Our experts are ready to assist you with any questions or concerns you may have.
How Scout Tax Can Help
Understanding and adapting to new IRS guidelines can be challenging. Scout Tax is here to assist both employers and employees in navigating these changes. Our team of experts will ensure your administrative processes are current and comply with the latest IRS regulations. Visit Scout Tax for more information on how we can support your business with these updates. Additionally, explore Scout Industries for comprehensive business solutions.
