HSA Contribution Limits 2024: Tax Rules, Strategies, and FAQs

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HSA Contribution Limits 2024: Tax Rules, Strategies, and FAQs

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A significant boost in 2024 HSA contribution limits was announced by the IRS, giving employees a chance to focus on their health’s future.

An official poll by the US Chamber of Commerce revealed that 96% of US workers believe that it’s important for a job to offer a health care plan. This critical data solidifies the significance of offering top talents all over the world a compensation package that lets them take care of their health.

Are you wasting time in your manual Comp Planning cycles?

These days, leading organizations utilize health savings accounts (HSAs) to attract and retain top-performing workers. Now that the IRS has given a huge boost to 2024 HSA contribution limits, companies have a better chance to take care of their employees’ health interests.

This guide walks you through everything you need to know about HSA, including its meaning, rules for eligibility, benefits, tax savings tips & strategies, and the latest news about 2024 HSA contribution limits.

What is an HSA?

An HSA or health savings account is a type of savings account that allows employees to save money through annual contributions and set it up to pay for qualified health care costs. You can withdraw money from your HSA funds anytime, but the allowable amount varies depending on your medical expenses.

Who is eligible for HSA?

All taxpayers are eligible to open a health savings account, but the IRS established certain requirements that employees must meet:

Be covered by an HDHP or High Deductible Health Plan on the first day of the month.
Not be covered by any other medical plan such as Medicare and any other healthcare insurance.
Cannot be claimed as dependent on someone else’s tax return.

In the case of married individuals both being eligible to have a health savings account, each spouse must open his/her own HSA. However, distributions can be used to cover certain medical expenses of the other spouse.

What are the benefits of HSA?

A health savings account is designed to take some of the stress out of an employee’s unexpected medical costs. Below are some of the most notable benefits of having HSA funds:

Flexible contribution options
The great thing about a health savings account is that others can also contribute to your HSA funds whether it’s your employer, relatives, or anyone else. Although employer contribution isn't legally required, several companies take this advantage to create an attractive compensation package for their top talents.

Another thing is that an employee’s 2024 HSA contribution limit will depend on the coverage chosen, either individual or family.

Highly convenient
Several HSAs issue either a debit card, checkbook, or even set up direct transfers, which you can use to pay for qualified medical expenses such as prescription medications, medical equipment, and even mental health services.
No time restrictions
You’re not required to take money out of your HSA funds by any given date. You can just focus on saving and investing your money until you need it for future medical expenses.

This is very different from FSAs or flexible spending accounts where the money doesn't earn any interest, and the account isn't portable if you leave your job.
Great retirement alternative
Young talents are attracted to health savings accounts because they serve as a solid source of medical funds during retirement. Therefore, starting to build their HSA funds while still in good health proves to be a positive investment overall.

Employees are now prioritizing benefits more than ever. This could mean a great challenge when it comes to effectively communicating those benefits in mind during the search for top talents.

The solution? Utilize the Compensation Planning Software to simplify employee benefits for your organization.

2024 HSA contribution limits

In response to the persistent rise of inflation, the recent announcement of the IRS about the 2024 HSA contribution limits certainly serves as great news for employees in the US.

Regarded as one of the biggest boosts in recent years, employees are now becoming keener to have an HSA. Studies show that 86% of employees are interested in employers contributing to their HSA funds.

Here are some valuable takeaways from the 2024 HSA contribution limits:

Individual coverage: $4,150 (7.8% increase from the 2023 HSA max contribution of $3,850)
Family coverage: $8,300 (7.1% increase from the 2023 HSA max contribution of $7,750)

Moreover, individuals aged 55 and older are eligible to deposit an HSA catch up contribution which is an additional $1,000 (same amount from the 2023 HSA max contribution) to their annual contribution limits before the end of each year.

Tax savings tips and strategies for HSA

One of the major reasons why a health savings account is attractive for employees is its tax advantages. Now, what exactly does it mean?

Triple-tax benefits
Your HSA funds offer a triple-tax advantage. Simply speaking—every money that goes into your account, when it grows, and when it comes out, are all tax exemptions.

Any interests or earnings incurred by your HSA funds are tax-free. Withdrawals from your account, if for qualified medical expenses, are also tax-free.
Pre-tax contributions
If you’re an employee and all of your HSA contributions are made through payroll deductions, the deposits are considered pre-tax which significantly lowers your overall taxable income.

When it comes to salary planning, utilizing the total compensation management software is key if you want to build a package that effectively covers your employees’ base salary, fringe benefits, bonuses, and more.

FAQs

Below are some common questions about 2024 HSA contribution limits:

When is the HSA contribution deadline?

The HSA contribution deadline generally coincides with the IRS tax filing deadline which falls on April 15 of each year. Let’s say that you’re an employee with self-only coverage under the age of 55. With that being said, your 2024 HSA contribution limit is $4,150.

So, if you’ve only accumulated $3,000 worth of contributions through payroll deductions by the end of 2024, you still have about four (4) months left to deposit the remaining $1,150.

Is HSA the same as HRA?

No, there are key differences between HSAs and HRAs or health reimbursement arrangements. Firstly, HRA accounts are owned by employers. Therefore, only the employer is allowed to pay contributions. Moreover, the money doesn't earn any interest, can't carry over to the next year, and is not portable if an employee changes jobs.

Is HSA part of health insurance?

No, an HSA is entirely different from health insurance. It’s a savings account with a triple-tax advantage that covers qualified medical expenses. While health insurance covers only a portion of medical costs in return of a monthly premium.

Want to avoid errors during Comp Planning?

Do HSA funds expire?

All of your HSA contributions never expire. The HSA funds stay safe in the account until you use it. Therefore, all remaining and unused HSA funds carry over to the next respective year.