October 28, 2005
js-2996

Indexed Amounts for Health Savings Accounts

The Treasury Department and IRS today issued new guidance on the maximum contribution levels for Health Savings Accounts (HSAs) and out-of-pocket spending limits for high deductible Health Plans (HDHPs) that must be used in conjunction with HSAs.  These amounts have been indexed for cost-of-living adjustments for 2006 and are included in Revenue Procedure 200r-70, which announces changes in several indexed amounts for purposes of the federal income tax.

The new levels are as follows:

New Annual Contribution Levels for HSAs:

• For 2006, the maximum annual HSA contribution for an eligible individual with self-only coverage is $2,700.  (Note: for any individual, the maximum contribution is the lesser of the indexed amount or the deductible of the HDHP.)
• For family coverage the maximum HSA contribution is $5,450.
• Catch up contribution for individual who are 55 or older is increased by statute to $700 for 2006.
• Both the HSA contribution and catch up contribution apply pro rate based on the number of months of the year a taxpayer is an eligible individual.

New Amounts for Out-of-Pocket Spending on HSA-Compatible HDHPs:

• The maximum annual out-of-pocket amounts for HDHP self-coverage increase to $5,250 and the maximum annual out-of-pocket amount for HDHP family coverage is twice that, $10,500.

Minimum Deductible Amounts for HSA-Compatible HDHPs:

• For 2006, the minimum deductible for HDHPs increases to $1,050 for self-only coverage and $2,100 for family coverage.

Note that a fiscal year HDHP that satisfies the requirements for an HSA-compatible HDHP on the first day of its fiscal year may apply that deductible for the entire fiscal year.