IRS raises HSA limit for 2024 with record increase

With inflation sitting at lofty levels post-pandemic, the Internal Revenue Service is raising the annual contribution limit for Health Savings Accounts by more than 7%, marking a record increase. 

“The IRS has made inflation adjustments to the HSA since 2004. The adjustments for 2024 for individual and family contribution limits mark its most significant increase by both percentage and amount—ever,” emphasizes Jason Bornhorst, co-founder and CEO of First Dollar, a healthcare benefits technology company. 

The HSA adjustments for individuals jumped 7.8% for 2024 compared to the previous year and increased 7.1% for family contributions, representing a $300 and $550 limit increase, respectively.

The second-highest limit increase occurred last year when the IRS raised the individual limit by 5.48% and the family limit by 6.16%, Bornhorst says.

Here’s a look at the 2024 limit changes, according to WEX and HRE research:

What are the 2024 HSA limit changes?

What are the 2024 HDHP amounts/limits?

What are the EBHRA limits?

“This year’s historic increases reflect the persistently high inflation we’ve experienced for the past few years in our economy. The IRS, just like everyone else, is trying to keep up with the rising cost of goods,” explains Bornhorst.

With this limit increase, the impact on employees can be significant, Bornhorst says.

For example, consider a couple who is over the age of 55 with a household income of $100,000. Assuming they have a federal income tax rate of 22% and contribute the maximum amount of $10,300 in 2024, they could see savings of $2,266 in taxes, Bornhorst says. 

“That’s not a small check. In a period marked by stubborn inflation, it’s about time consumers got some good news,” he notes, adding, “The tax savings provided by an HSA could help pay for their next vacation.”

HSA limit increase a conversation starter for employers and employees?

The increase also could serve as an opportune time to discuss your organization’s HSA program and encourage employees to not only open an HSA account but take the additional step of contributing to it.

After all, HSA accounts provide both a means to pay for medical expenses pre-tax and can accumulate interest on the unspent funds and serve as a potential vehicle for retirement savings. 

However, only 60% of employees are enrolled in an HSA-qualifying health option when offered that opportunity, according to the Plan Sponsor Council of America’s 2022 HSA Survey.

And of this group that was enrolled in an HSA option in 2021, only 72.8% made contributions to their HSA account, according to the survey.

“For the most part, employees are still using HSAs as a spending account and employers continue to struggle with explaining HSAs to employees,” the survey report states.

Given the increasing interest in employees’ financial wellness, it may make sense for employers to stress the ability of HSAs to also serve as potential retirement accounts.

Employers also get a limit bump

In addition to increasing the limit on HSAs, the IRS also raised the Excepted Benefit HRA (EBHRA) for employers. Companies, as a result, can contribute up to $2,100 annually toward reimbursing employees’ out-of-pocket medical expenses. These expenses can include co-pays as well as deductibles for dental and vision care, for example.

EBHRAs, first available in 2020, allow employers to reimburse their employees tax-free for select medical expenses not covered by their health insurance plan, according to the American Benefits Group, an HR tech benefits company.

IRS action also comes with higher costs

Although employees may appreciate the higher HSA limits, they may not necessarily share that view about the increased deductibles for the high deductible health plan (HDHP) that take effect in 2024.

The deductibles for both HDHP self-only minimums and family minimums will rise 6.7%. 

And although the higher HDHP minimum deductible does not fully wipe out the benefit received from a higher HSA limit and the tax break it will yield, the higher expense might encroach upon employees’ vacation dreams with their tax refund money.