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CRS Updates Report on Health Savings Accounts

On August 13, 2020, the Congressional Research Service (CRS) released its updated report, Health Savings Accounts (HSAs).  HSAs are tax-favored individual accounts that can be used to accumulate funds to cover unreimbursed medical expenses (e.g., deductibles, copayments, coinsurance and other services not covered by insurance).  The updated report incorporates changes made to HSAs as a result of the COVID-19 pandemic and recent recession. 

The report summarizes the principal rules governing HSAs, including: 1) eligibility; 2) qualifying health insurance; 3) contributions; 4) withdrawals; and 5) tax advantages.  In addition, the report provides information regarding HSA data limitations and current research data findings on High Deductible Health Plans (HDHP) enrollment and HSA utilization trends. 

In 2020, the maximum annual contribution limit is $3,550 for individuals with self-only coverage and $7,100 for those with family coverage.  In 2021, the maximum annual contribution limit is $3,600 for self-only coverage and $7,200 for family coverage.  The applicable annual limits apply to total contributions to the HSA from all sources (i.e., from individuals and employers).  These amounts are adjusted for inflation annually (rounded to the nearest $50).

The main tax advantages of HSAs include:

  • Individual contributions are tax deductible unless made through a pretax salary reduction agreement;
  • Employer contributions (including individual contributions made through pretax salary reductions) are excluded from taxable income and from Social Security, Medicare, and unemployment insurance taxes;
  • Account earnings are tax exempt; and
  • Withdrawals are not taxed if used for qualified medical expenses.

The qualified individuals who contribute to their HSAs may claim a deduction on their federal income tax return to reduce their tax burden.  Generally, individuals are penalized for withdrawing funds for nonqualified medical expenses and for making contributions above the annual HSA limit.

The report is available here.