Tag: IRS

IRS sets 2016 Health Savings Account contribution limits

Editor note: This article was originally published on May 5, 2015 by Business Insurance and can be found here.

The maximum contributions that can be made to health savings accounts in 2016 will increase $100 for families, but remain unchanged for individuals.

The Internal Revenue Service announced Monday that the maximum contribution that can be made next year to an HSA linked to a high-deductible plan will be $6,750 for employees with family coverage, up from $6,650, while the maximum contribution for those with single coverage will remain at $3,350.

However, maximum out-of-pocket expenses will increase in 2016 for both categories.

Maximum out-of-pocket employee expense, including deductibles, will rise $100 next year to $6,550 for single coverage, and increase $200 next year to $13,100 for family coverage.

For 2016, a high-deductible health plan is defined as a one with an annual deductible of least $1,300 for self-only coverage and $2,600 for family coverage.

Increases in the HSA limits, which are detailed in Revenue Procedure 2015-30, are tied to changes in the cost of living.

Learn more about Health Savings Accounts.

HSA Basics: Definition of Dependent

As you likely know, the IRS regulates HSAs. They set the rules regarding tax treatment of HSAs, including the definition of a dependent. Health insurance carriers define “family” as the employee and his/her spouse and children. The IRS defines “family” as the taxpayer plus one more person. And that person must pass the test of a “dependent” from an IRS perspective.

A dependent is defined under Code section 152. The Code has a two-prong definition of dependent:

  • Qualifying child – a qualifying child is any child (son, daughter, brother, sister, niece, nephew, grandchild) who passes three tests: 1) will not be age 19 during the year (or 24 if a full-time student). An exception is made for a disabled “child” who is considered as satisfying the age requirement despite actual age; 2) has the same principal place of residence as the taxpayer for more than half the year; and 3) does not provide over half of his/her own support.
  • Qualifying relative – a qualifying relative is any individual who meets four criteria: 1) is not a qualifying child of any other person; 2) has income less than the exemption amount ($3950 for 2015); 3) receives over half of his or her support from the taxpayer; and 4) if a non-relative, resides with the taxpayer the entire year.

Why is the IRS dependent definition important to you?

If you have dependents that meet the above tests, then you may use your HSA funds to pay for their medical, dental and vision expenses. And you may contribute more to your HSA account. In 2015, you may contribute $6650 vs. $3350 if you were single. Contributions may be deducted “above the line” on your tax return or made pre-tax if you are enrolled in a flex plan at work.

If you have any questions, contact us at customer.service@sterlingadministration.com or 800.617.4729.

Important IRS Updates: Contribution Limits & FSA Compliance

The Internal Revenue Service announced the following new benefit plan limits for 2015. In addition, the IRS just issued an important change to Section 125 Cafeteria Plans. We’re notifying FSA clients about this change now.

Health Savings Account (HSA) Limits

  • 2015 HSA contribution limits are $3,350 for self-only coverage and $6,650 for family coverage.
  • High deductible health plan deductibles are $1,300 for individuals and $2,600 for families. Out-of-pocket expenses cannot exceed $6,450 for individuals and $12,900 for families.

Flexible Spending Account (FSAs) Limits

  • Healthcare FSA: The annual maximum for Healthcare FSAs has increased from $2,500 to $2,550 for 2015.
  • Dependent Care FSA: At this time, the IRS has not released information on contribution limit changes to these plans.
  • Transit & Parking FSA: Contribution limits remain unchanged for 2015. The monthly limits are $250 for parking, $130 for transit and $20 for bicycle commuting.

IRS Issues Notice 2014-55 Allowing Additional Permitted Election Changes to Health Coverage Under Section 125 Cafeteria Plans

The IRS just issued Notice 2014-55 to expand the permitted election rules for health coverage under a Section 125 cafeteria plan. There are now two situations in which a Section 125 cafeteria plan participant is permitted to revoke her/his election during a period of coverage:

  • The first situation involves a participating employee whose hours are reduced so that the employee is expected to average less than 30 hours of service per week, but for whom the reduction does not affect the eligibility for coverage under the employer’s group health plan.
  • The second situation involves an employee participating in an employer’s group health plan who would like to cease coverage under the group health plan and purchase coverage through a competitive marketplace established by the ACA Exchange or Marketplace.

We are in the process of notifying FSA clients regarding amendment to their plan documents, if they choose. Read more about this change in this release from the IRS.

Please contact us if you have questions or need more information.

Eligible Expenses: What Expenses are Eligible with an HSA, FSA or HRA?

An HSA (Health Savings Account), FSA (Flexible Spending Account) or HRA (Health Reimbursement Arrangement) account allows you to use funds to pay for eligible medical expenses as defined by the IRS. In this video, you can learn more about which medical expenses are eligible, and which are not. You can also find a downloadable list of sample eligible and ineligible expenses here.

Learn more about Sterling Health Services.