HSA Proposal

A new bill was introduced on 11/20 in Congress to amend some HSA rules. It still has to go through the Ways and Means, House and Senate.

I doubt it will get through this year, but it's good to be aware of potential changes.

If enacted, all the changes would go effective after December 31, 2025, but it's very unlikely.

In particular, there are 2 main proposals:

> Income limits
> 2 Year rule

Currently, there is no income limitation to contribute to an HSA. This makes it an effective tax strategy for high earners to lower their taxes.

The new proposed bill would create an income limitation where if you make more than $240,000 (single) or $340,000 (married jointly) you will get $0 deduction for contributing to an HSA.

The contribution deduction would phase out if you make more than $200,000 (single) or $300,000 (married jointly).

In addition, currently, the HSA contribution submitted via payroll, isn't subject to the 7.65% FICA tax.

The proposed bill would change that and you contributions would be subject to the FICA tax.

The proposed bill would also change the rules so you can only reimburse yourself for expenses if you do it within 2 years of paying the expense. Any reimbursement after the 2-year window will no longer count as a qualified medical expense.

This rule would apply to expenses paid or distributions made after Dec 31, 2025.

The bill also adds new substantiation rules for HSA distributions, requiring that expenses be properly documented before they qualify as tax free (hopefully you've done that before anyways)

HSA trustees will also be responsible for determining whether distributions are adequately substantiated.

So, what do we do now? Nothing. I suggest business as usual, but continue monitoring the progress on this.

If this ever does become law, it might be wise to reimburse yourself for all the prior expenses before this passes.

What are your thoughts on this?

The post HSA Proposal appeared first on HumbleDollar.