The following health savings account (HSA) limits apply for calendar year beginning 2013:

HDHP Minimum Deductible Amount

Individual                                            $1,250

Family                                                   $2,500

HDHP Maximum Out-of-Pocket Amount

Individual                                             $6,250

Family                                                    $12,500

HSA Maximum Contribution Amount

Individual                                             $3,250

Family                                                    $6,450

Catch-Up Contributions (age 55 and older) $1,000

Last January, due to the new PPACA rules, people who wanted to use their Health Savings Accounts (HSA) or Flexible Spending Accounts (FSA) to purchase over the counter medication had to get a prescription from their physician. Without a prescription, the over the counter medications did not qualify as a medical expense for HSA or FSA. Well, things may be changing – for the better.

Last week, Congress introduced bipartisan legislation to remove restrictions on tax-exempt health spending accounts – a revenue-raising provision of the Affordable Care Act that was estimated to garner $5 billion over 10 years. The bill would end a provision that since January has required a prescription for buying over-the-counter medicines with medical savings accounts, such as Flexible Spending Accounts and Health Savings Accounts.

The language was originally added as a way to keep the Affordable Care Act’s costs down by reducing unnecessary drug purchases. However, the provision appears to have had the opposite effect of increasing costs, as many people are scheduling doctor visits for the sole purpose of obtaining prescriptions for over-the-counter medications. The proposed legislation would restore the ability of people participating in a medical savings account to use funds from those accounts to purchase over-the-counter medications without a prescription.

As you know, with a new year comes new contribution limits for Health Savings Accounts and 401(k) retirement plans. This new year is unique because it also ushers in some new rules due to the Patient Protection and Affordable Care Act that was passed last year.

So let’s look first at the limits for Health Savings Accounts and 401(k) plans:

2011 Health Savings Account Contribution Limits

• The annual HSA contribution limit for employee-only coverage will remain at $3,050. It is $6,150 for family coverage.
• The minimum deductible for employee–only HDHP coverage will remain $1,200 ($2,400 for family coverage)
• The catch-up contribution limit for individuals 55 or older is $1,000.

2011 401(k) Retirement and Related Limits

401k Plan Limits for Plan Year 2011 2010
401k Elective Deferrals $16,500 $16,500
Annual Defined Contribution Limit $49,000 $49,000
Annual Compensation Limit $245,000 $245,000
Catch-Up Contribution Limit $5,500 $5,500
Highly Compensated Employees $110,000 $110,000

Non-401k Related Limits
403(b)/457 Elective Deferrals $16,500 $16,500
SIMPLE Employee Deferrals $11,500 $11,500
SIMPLE Catch-Up Deferral $2,500 $2,500
SEP Minimum Compensation $550 $550
SEP Annual Compensation Limit $245,000 $245,000
Social Security Wage Base $106,800 $106,800

2011 Changes due to Health Care Reform

• Over-the-counter (OTC) medications do not qualify under Health Savings Account or Flexible Spending Accounts unless you have a written prescription for them.
• The penalty for using HSA money on non-qualified expenses is now 20%.

Last year, many employers implemented Health Savings Account (HSA) plans as a benefit option for 2005. Now that tax time is here, its time for those insured under these plans to settle up with Uncle Sam regarding qualified expenses incurred under these plans.

At the end of the year, you will receive a report from your Health Savings Account bank that shows money in & money out of the account. For tax time, you will need a new IRS Form 8889.

Use Form 8889 to:
• Report Health Savings Account contributions (including those made on your behalf and employer contributions).
• Figure your HSA deduction, and
• Report distributions from HSAs

As always, please consult your tax advisor regarding questions and/or the necessity of these forms.