The IRS has announced the 2016 deduction limits for annual contributions to health savings accounts (HSAs). These deduction limits are updated annually to account for inflation.
An HSA is like a medical IRA. You establish an HSA account with a health insurance company, bank, or other financial institution. In case you or a family member gets sick, you must also obtain an HSA-qualified health insurance policy with a high deductible.
Your contributions to your HSA account are tax deductible, and you don’t have to pay tax on the interest or other money you earn on the money in your account. You can withdraw the money in your HSA to pay almost any kind of health-related expense, and you don’t have to pay any tax on these withdrawals.
For calendar year 2016, if you have individual coverage, the maximum you may contribute to your HSA is $3,350 (unchanged from 2015). If you have family coverage, the maximum contribution in 2016 is $6,750—a $100 increase over 2015. In addition, individuals who are 55 to 65 years old can make optional tax-free catch-up contributions to their HSA accounts of up to $1,000 each year.
A key feature of an HSA-qualified health plan is that it must have a relatively high annual deductible (the amount you must pay out of your own pocket before your insurance kicks in). In 2016, the minimum annual deductible for a single person is $1,300, and $2,600 for families (unchanged from 2015). The maximum permissible annual deductible will be $6,550 for individuals (an increase of $100 from 2015) and $13,100 for family coverage (an increase of $200 from 2015). (Revenue Procedure 2014-30.)