IRS Announces HSA Contribution Limits for 2010

May 18, 2009

One of the most beneficial provisions enacted into law in recent years involved the creation of health savings accounts (HSA’s). HSAs provide significant tax benefits and lower the cost of health care insurance coverage. Also, because the accounts are private accounts that are owned by individuals, they disconnect health insurance from an employer. For a typical family of four, HSA’s can easily reduce after-tax health care costs by $200-300 dollars a month on the average.

To have an HSA, an account owner must also have a high deductible health insurance policy. That results in lower premiums. But, the higher deductible will result in the insured having higher out-of-pocket medical expenses. To offset these higher costs, several tax benefits are provided – the taxpayer (or the taxpayer’s employer) can contribute to an HSA on a tax-free basis. Any earnings on the amount in the account are also not taxed, and payments for medical expenses from the HSA are not taxed if they are made for health and medical purposes.

But, there are limits on the amount that can be contributed to an HSA annually, and IRS adjusts that amount each year. IRS has now announced that the 2010 limits are $3,050 (up from $3,000 in 2009) for individual coverage and $6,150 for family coverage (up from $5,950 in 2009). Rev. Proc. 2009-29.