The IRS issued its annual inflation adjustment for health savings accounts for 2021, at a time when many taxpayers are worried about their health in the midst of the coronavirus pandemic.
In Revenue Procedure 2020-32, the IRS stated that for calendar year 2021, the annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,600 (increase from $3,550 the previous year). For 2021, the annual limitation on deductions for an individual with family coverage under a high deductible health plan is $7,200 (increase from $7,100 the previous year).
A “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage, and the annual out-of-pocket expenses do not exceed $7,000 for self-only coverage or $14,000 for family coverage.
The IRS announced in March that high-deductible health plans can now cover the cost of COVID-19 testing and treatment before the plan deductible is met.
As part of the CARES Act signed into law at the end of March, Congress is also now allowing people to use the HSA to pay for over-the counter drugs and medicine, such as pain relievers, without a doctor’s prescription. This essentially reverses a provision of the Affordable Care Act that required a prescription for such purchases. The CARES Act also allows the use of HSA’s for remote care services until 31st December 2021.