Contributing to a health savings and spending account, such as an HSA (Health Savings Account) or FSA (Flexible Spending Account) can lower your taxable income. That’s because your contributions to these accounts are pre-tax. However, there are limits to how much you can contribute to an HSA or FSA each year. And if you exceed those contribution limits, you could face financial penalties.
You probably already have the limits for 2023 that you’ll use when you file your 2023 tax return. But if you like to plan ahead, the IRS just announced health savings account contribution limits for 2024.
Here’s what you need to know.
HSA limit for 2024
The IRS announced the HSA contribution limits for 2024. Individuals can contribute up to $4,150 to their HSA accounts for 2024, and families can contribute up to $8,300.
- These amounts are approximately 7% higher than the HSA contribution limits for 2023.
- Catch-up contribution limits for taxpayers 55 and older remain unchanged at $1,000.
- There are no rollover limits for HSA contributions. Any amount left over at the end of the year will automatically roll over into the next.
However, keep in mind that not everyone can contribute to an HSA. You must have a high-deductible health plan (HDHP) to open a health savings account. But if you don’t have an HDHP, you might still be able to open another type of medical savings account, like a FSA.
FSA limit for 2024
If you don’t have a high-deductible health plan, opening a health FSA may be an option. However, unlike health savings accounts, you can only open an FSA if your employer offers one. That means self-employed taxpayers aren’t eligible for FSAs. But if you do have an FSA in 2024, here are the maximum amounts you can contribute for 2024 (tax returns normally filed in 2025).
- The 2024 maximum Health FSA contribution limit is $3,200.
- For cafeteria plans that allow the carryover of unused amounts, the maximum carryover amount for 2024 is $640.
Penalty for making excess contributions
If you exceed contribution limits for an HSA or FSA, the excess amount will be subject to regular income tax. But that’s not all. An excise tax of 6% will also apply to any amount that is over the contribution limit.
If you find that you’ve exceeded your health savings plan contribution limit, you can correct the mistake, as long as you withdraw the excess funds before the federal tax filing deadline. Don’t forget to withdraw any interest earned on the excess funds if you want to avoid additional taxes.
HSA vs. FSA: which is better?
HSAs and FSAs each come with advantages and disadvantages, and you will have to make decisions around what will work best for you. Which type of medical savings account you feel is best for you depends on your circumstances. For example, a low deductible health plan (which disqualifies you for an HSA) might make more sense for people who expect to have significant medical expenses. But an HSA might be a good option for taxpayers with lower out-of-pocket medical expenses or if their employer doesn’t offer any medical savings account.
What are qualified medical expenses? Typically, funds in a Health FSA or HSA can be used to pay for the same types of qualifying medical expenses. Here are a few examples of what expenses qualify:
- Copays
- Prescription and non-prescription drugs
- Prescription eyeglasses
- Dental procedures
For a full list of qualifying medical expenses, you can check with your medical savings account provider or visit www.irs.gov.
