The IRS has adjusted the limits on deductions for contributions to a health savings account, to account for inflation. Let's break it down.

What's an HSA and an HDHP?

An HSA, Health Savings Account, helps taxpayers with family coverage under a high-deductible health plan, or HDHP.

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Those who participate in an HDHP are allowed to take a deduction for contributions to HSAs to help pay their medical expenses. The contribution deduction limit is subject to an inflation adjustment each year. To be eligible to contribute to an HSA, you must participate in an HDHP, which is a health plan with an annual deductible that is not less than a certain limit each year and for which the annual out-of-pocket expenses, including deductibles, co-payments, and other amounts, but excluding premiums, do not exceed a certain limit each year.

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Limits Increased for 2020

For 2020, there's an increase of $50 from the 2019 amount for individuals and a $100 increase for families.

The new annual limit on deductible contributions is $3,550 for individuals with self-only coverage under an HDHP and $7,100 for family coverage.

The limits on annual deductibles are also subject to annual inflation adjustments. For 2020, the lower limit on the annual deductible for an HDHP is $1,400 for self-only coverage and $2,800 for family coverage, both increased from 2019. The upper limit for out-of-pocket expenses is $6,900 for self-only coverage and $13,800 for family coverage, both increased from 2019.

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