What Is the Annual HSA Contribution Limit?

A Health Savings Account (HSA) is a tax-advantaged savings and investment vehicle for healthcare expenses. It helps individuals manage current and future medical costs, complementing a specific type of health insurance plan.

HSA Contribution Limits

The Internal Revenue Service (IRS) establishes annual limits on the amounts individuals can contribute to a Health Savings Account, with these figures subject to periodic adjustments based on inflation. For the 2024 tax year, individuals with self-only High-Deductible Health Plan (HDHP) coverage could contribute up to $4,150. Those with family HDHP coverage were permitted to contribute $8,300.

Looking ahead to the 2025 tax year, the contribution limits have increased. Individuals with self-only HDHP coverage can contribute up to $4,300, while those with family HDHP coverage may contribute $8,550. The IRS typically announces these updated limits by June 1st of each year, providing ample time for planning.

Individuals aged 55 and over can contribute an additional $1,000 annually as a “catch-up” contribution. This provision remains consistent for both the 2024 and 2025 tax years.

These limits apply on a calendar-year basis, and the total amount contributed from all sources cannot exceed these thresholds. If an individual is not eligible for the entire year, the contribution limit must be prorated based on the number of months of eligibility. For example, if eligible for only seven months, the maximum contribution is calculated proportionally.

Eligibility for HSA Contributions

Eligibility to contribute to a Health Savings Account is contingent upon meeting specific criteria, with the most significant being enrollment in a High-Deductible Health Plan (HDHP). An HDHP is characterized by both a minimum deductible and a maximum out-of-pocket expense limit. These thresholds are defined by the IRS and are subject to change annually.

For the 2024 tax year, an HDHP required a minimum deductible of $1,600 for self-only coverage and $3,200 for family coverage. The maximum out-of-pocket expenses for these plans were capped at $8,050 for self-only coverage and $16,100 for family coverage. These amounts represent the minimum a policyholder must pay before their insurance begins to cover costs and the most they will pay in a given year for covered services.

For the upcoming 2025 tax year, the HDHP criteria have been adjusted. The minimum deductible will increase to $1,650 for self-only coverage and $3,300 for family coverage. Concurrently, the maximum out-of-pocket limits will rise to $8,300 for self-only coverage and $16,600 for family coverage. It is important to note that these out-of-pocket limits include deductibles, copayments, and coinsurance, but not premiums.

Beyond the HDHP requirement, individuals must not be covered by any other non-HDHP health insurance. They also cannot be enrolled in Medicare or claimed as a dependent on someone else’s tax return.

Understanding Contributions Toward the Limit

Contributions to a Health Savings Account can originate from various sources, all of which count collectively towards an individual’s annual limit. An individual can directly contribute funds to their own HSA. Employers often contribute to their employees’ HSAs as part of a benefits package, and these employer contributions are included in the overall annual limit.

Additionally, third parties, such as family members, can make contributions on behalf of an eligible individual. Regardless of the source, all funds deposited into an individual’s HSA for a given tax year are aggregated to determine if the annual contribution limit has been met or exceeded.

Contributions can be made in different ways. Many individuals choose to contribute pre-tax through payroll deductions offered by their employer, which can simplify the process and provide an immediate tax benefit. Alternatively, individuals can make after-tax direct contributions to their HSA custodian. These direct contributions can then be deducted on their tax return, reducing taxable income.

It is the account holder’s responsibility to monitor all contributions to ensure they remain within the established limits and avoid potential penalties. All contributions count towards a single, unified annual limit.

Managing Excess Contributions

Contributing more than the allowable annual limit to a Health Savings Account results in an “excess contribution.” An excess contribution is subject to specific tax implications and requires corrective action.

The IRS imposes a 6% excise tax on the excess amount for each year it remains in the account. This means the penalty is recurring until the over-contributed funds are removed.

To avoid this recurring excise tax, the excess contributions, along with any earnings attributable to those excess amounts, must be removed from the HSA. The deadline for this removal is typically the individual’s tax filing deadline for the year the contributions were made, including any extensions. Failure to remove the excess by this deadline will result in the 6% excise tax applying for that tax year.

The process for rectifying an excess contribution involves contacting the HSA custodian. The custodian will facilitate a “return of excess contributions,” which includes both the over-contributed principal and any associated net income. While removing the excess principal avoids the excise tax, the earnings removed are considered taxable income in the year the contribution was originally made.

Tax reporting for excess contributions and their removal involves specific IRS forms. Contributions, including those that become excess, are generally reported on Form 5498-SA by the HSA trustee. Distributions from the HSA, including the removal of excess contributions, are reported on Form 1099-SA. If an excise tax is owed due to uncorrected excess contributions, it is reported on IRS Form 5329, “Additional Taxes on Qualified Plans and Other Tax-Favored Accounts.” It is prudent to consult with a tax advisor for guidance on specific reporting requirements.