HSA Annual Changes for 2021

A health savings account (HSA) is a tax-friendly way for employees to pay their healthcare-related expenses. The Internal Revenue Service revises the rules regarding HSA contributions every year, which means employers need to be aware of the new contribution limits for 2021.

Benefits of Health Savings Accounts

Employers can fund some or all of an employee’s annual contributions to an HSA, either periodically or as a lump-sum payment. Employer contributions made to an employee’s HSA aren’t included as part of the employee’s income. Distributions from the HSA, when used for qualified medical expenses, are not taxed.

Many employers contribute to their employees’ HSAs as part of their overall benefits package. It’s a way for employers to help employees pay for their medical expenses, and employees value this contribution. Companies also realize tax savings on these HSA contributions because it reduces their payroll taxes. It’s a win-win for employers and employees.

Health Savings Accounts 2021 Contributions

You must be covered under a high deductible health plan to contribute to an HSA. For 2021, the health plan must have a deductible of at least $1,400 for employee-only coverage or $2,800 for family coverage. The IRS limits how much money an individual or employer can contribute to an HSA plan. These limits change each year, typically tied to inflation rates, and the IRS has announced its changes for the new year.

For 2021, the maximum HSA contribution for individuals is $3,600, an increase of $50 from 2020. This limit applies to total contributions, whether made by the employee or the employer. The maximum HSA contribution for families is $7,200, up $100 from the previous year. Employees aged 55 or older can make an additional “catch-up” contribution of $1,000, the same as in 2020.

Remember, these HSA limits are for total contributions. If an employer contributes $3000 to an employee’s HSA, the employee can only contribute an additional $600 to the maximum $3,600 number.

Communicate Changes in HSA Limits – and Don’t Overcontribute

Employers need to communicate new contribution limits to their employees. These new HSA limits should also be factored into employers’ benefits plans for the coming year.

It’s also important that employers keep careful track of HSA contributions, and that these contributions are clearly and frequently communicated to employees. Employees don’t want to overcontribute to their HSAs. They need to know how much their employers are contributing so they don’t go over that amount with their personal contributions.

Let CBR Help You Deal with HSA Changes

Dealing with HSA contributions and the annual limit changes can be tricky. If you need assistance dealing with HSA benefits and the new 2021 changes, turn to the professionals at Creative Business Resources. We can set up your HSA plans, manage company match settings, and make sure the new limits are clearly communicated to employees.

At CBR, we’ve been helping Arizona businesses deal with HR, payroll, and benefits issues since 1998. Our buying power can help even the smallest businesses offer benefits packages that rival those of big companies. We pride ourselves on providing solutions that help your business run more efficiently and profitably.

Contact CBR today to learn more about HSA plans and contributions.