The IRS has recently issued the 2025 inflation-adjusted amounts for Health Savings Accounts (HSAs). These annual adjustments, based on inflation, are announced earlier than other inflation-adjusted amounts to give employers adequate time to prepare for the upcoming year.
Fundamentals of HSAs
At Accavallo & Company, we understand the importance of HSAs in your financial planning. An HSA is a trust established solely for paying qualified medical expenses of the account beneficiary. It can only be set up for an eligible individual covered under a high-deductible health plan (HDHP). Additionally, participants cannot be enrolled in Medicare or have other health coverage, with exceptions for dental, vision, long-term care, accident, and specific disease insurance.
Contributions to an HSA are tax-deductible up to specified limits, and these limits, along with the annual deductible and out-of-pocket expenses under the tax code, are adjusted annually for inflation.
Inflation Adjustments for 2025
According to Revenue Procedure 2024-25, the IRS has set the following inflation-adjusted figures for HSA contributions in 2025:
- Annual contribution limits:
- For individuals with self-only coverage under an HDHP, the limit will be $4,300 (up from $4,150 in 2024).
- For individuals with family coverage, the limit will be $8,550 (up from $8,300 in 2024).
- The $1,000 catch-up contribution for individuals aged 55 or older remains unchanged for both 2024 and 2025.
- High-deductible health plan limits:
- An HDHP will have an annual deductible of at least $1,650 for self-only coverage and $3,300 for family coverage (up from $1,600 and $3,200, respectively, in 2024).
- Annual out-of-pocket expenses (excluding premiums) will be capped at $8,300 for self-only coverage and $16,600 for family coverage (up from $8,050 and $16,100, respectively, in 2024).
Health Reimbursement Arrangements
The IRS has also updated the inflation-adjusted amount for Health Reimbursement Arrangements (HRAs). In 2025, the maximum amount available for an excepted benefit HRA will be $2,150 (up from $2,100 in 2024). HRAs are funded by employers, and contributions are not included in the employee’s income. Reimbursements for eligible medical expenses are tax-free.
Benefits of HSAs
As your trusted tax advisors, we want to highlight the benefits of HSAs for both employers and employees. Contributions are made pre-tax, and the funds can accumulate tax-free over time. Withdrawals for qualified medical expenses, such as doctor visits, prescriptions, chiropractic care, and premiums for long-term care insurance, are also tax-free. Additionally, HSAs are portable, meaning the account remains with the holder even if they change employers or leave the workforce. Many employers find HSAs to be an attractive fringe benefit for recruiting and retaining employees.
If you have questions about how these changes impact your business or need assistance with HSA-related matters, please contact us. Our team is here to help you navigate these adjustments and optimize the benefits for your organization.
