New HSA Guidance for 2006
By Patrick Haraden, CEBS, CLU, ChFC, REBC
Director, Employee Benefit Services, Longfellow Benefits
On October 29, 2005, the Treasury Department and IRS issued new guidance on the maximum contribution levels for Health Savings Accounts (HSAs) and out-of-pocket spending limits for High Deductible Health Plans (HDHPs) that must be used in conjunction with HSAs. These amounts have been indexed for cost-of-living adjustments for 2006 and are included in Revenue Procedure 2005-70, which announces changes in several indexed amounts for purposes of the federal income tax.
New Annual Contribution Levels for HSAs:
- For 2006, the maximum annual HSA contribution for an eligible individual with self-only coverage is $2,700. (Note: for any individual, the maximum contribution is the lesser of the indexed amount or the deductible of the HDHP.)
- For family coverage the maximum annual HSA contribution is $5,450.
- Catch up contributions for individuals who are 55 or older is increased by statute from $600 to $700 for 2006.
- Both the HSA contribution and catch up contribution apply pro rata based on the number of the months of the year a taxpayer is an eligible individual, and, with respect to the catch up contribution, the number of months of the year that the taxpayer is age 55 and over.
New Amounts for Out-of-Pocket Spending on HSA-Compatible HDHPs:
- The maximum annual out-of-pocket amount for HDHP self-coverage increases to $5,250 and the maximum annual out-of-pocket amount for HDHP family coverage is twice that, $10,500.
Minimum Deductible Amounts for HSA-Compatible HDHPs:
- For 2006, the minimum deductible for HDHPs is $1,050 for self-only coverage and $2,100 for family coverage.