Tax-reducing deductions, credits, and exclusions get an inflation bump in 2024
Inflation eases tax bites in 2024 on capital gains, estates, and other wealth-related income

Medical tax provisions' inflation adjustments could be a tax-cutting Rx

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If you've been to a doctor recently, refilled a subscription, had to go to an emergency room, or just bought over-the-counter medications, you know that all these treatments cost a lot more than in previous years.

It's enough to make you sick, or at least nudge up your blood pressure a bit.

However, the tax code might have an Rx that can help.

There are a variety of medical tax breaks that can help lower your federal tax bill. Several of them are adjusted each year to account for inflation.

Here, in Part 5 post of the ol' blog's annual tax inflation series, is a look at those health care related changes for the 2024 tax year.

Flexible spending account (FSA) bumps: A medical flexible spending account, or FSA, is a great and tax-saving way to pay for health costs that aren't covered by your insurance. How much you put into this workplace benefit also is indexed for inflation.

The base FSA amount for a health-related account was set at $2,500 when the Affordable Care Act, aka the ACA and/or Obamacare, became law back in 2010. The ACA also allows for the possibility that the FSA limit could increase depending on inflation.

For the 2024 tax year, you can put up to $3,200 in your FSA. That's a $150 increase from 2023's $3,050 FSA contribution limit.

Inflation also helps out if your company plan provides some relief from the usual FSA use-it-or-lose-it rule. Some employers allow their workers to roll over unused FSA money into the next benefits year. The IRS says that in 2024, the allowable rollover amount of $640. That's a $30 inflation bump from this year's $610 FSA rollover limit.

Health Savings Account (HSA) increases: Sometimes the cost of health insurance makes you feel worse than things that drive you to the doctor. That's why some folks opt for a high-deductible health plan, or HDHP.

The premiums for an HDHP tend to be lower. The downside, though, is the high deductible phrase in these plans' names. You have to pay more to reach your HDHP's deductible amount before the insurance coverage kicks in.

The tax code offers some help in dealing with an HDHP's high out-of-pocket costs. You can open an associated Health Savings Account, or HSA, to pay for your larger deductibles.

The tax benefits of an HSA include:

  • Fully deductible contributions up to the legal limit;
  • Untaxed withdrawals when used to pay qualified medical expenses, including dental and vision exams;
  • Tax-free interest on the earnings as long as the money is used to pay qualified medical expenses; and
  • No requirement that HSA money be used or forfeited by a certain deadline.

The IRS actually announced back in April the 2024 inflation adjustments for HSAs and the HDHPs required to open these medical accounts. It reiterates them in this latest inflation announcement.

To save you some time (although if you want to click on over to that earlier post using the link in the previous sentence, that's great, too) the table below shows the HSA contribution and maximum out-of-pocket limits for high-deductible medical coverage for the 2023 and, for comparison, the 2024 tax years.

Maximum Contribution and Out-of-Pocket Limits
Health Savings Accounts (HSAs)
and High-Deductible Health Plans (HDHPs)

 

2023

2024

HSA contribution limit

Self-only: $3,850
Family: $7,750

Self-only: $4,150
Family: $8,300

HSA catch-up contributions
(age 55 or older)

$1,000

$1,000

HDHP minimum deductibles

Self-only: $1,500
Family: $3,000

Self-only: $1,600
Family: $3,200

HDHP maximum
out-of-pocket amounts

Self-only: $7,500
Family: $15,000

Self-only: $8,050
Family: $16,100


A note about the catch-up provision for older owners of an HSA. It is set by law at $1,000 and not subject to annual inflation adjustments.

Medical Savings Account (MSA): Another tax-favored medical savings account is the aptly named Medical Savings Account, or MSA. This account also is known as an Archer MSA, with the name recognizing the former Texas Republican Rep. Bill Archer's support of the plan. Whatever you call it, these accounts also are potentially affected by annual inflation changes.

The Archer MSA was created to help self-employed individuals and employees of certain small companies meet medical care costs. But since 2007, they have essentially been replaced by HSAs. The IRS continues to account for them in inflation calculations to accommodate the Archer MSAs created before the law change. You can find details on the different accounts IRS Publication 969.

For tax year 2024, the IRS says that participants who have self-only coverage in an MSA, the plan must have an annual deductible that is not less than $2,800 (an increase from the $2,650 for 2023 tax year), but not more than $4,150 (that's also a bump from the $3,950 for the 2023 tax year). The maximum out-of-pocket expenses (other than for policy premiums) for self-only coverage in 2024 will be $5,550 (another increase, this time up from 2023's $5,300 cap).

For MSA participants with family coverage in 2024, the floor for the annual deductible is $5,550 (up from 2023's $5,300). However, the deductible next year cannot be more than $8,350 (a jump from the $7,900 for this year).

And if you have family coverage, the out-of-pocket expense limit (again, this doesn't cover premiums) is $10,200 in 2024, an increase from the tax year 2023 limit of $9,650.

Long-term care coverage premiums: In addition to medical insurance, many folks buy long-term care insurance to help them pay for the assistance they might need, in their own homes or in an eldercare facility, when they are older.

Premiums for a long-term care policy are deductible up to a certain amount as an itemized medical expense. The long-term care coverage amounts that can be claimed on Schedule A as part of you total medical expenses that exceed more than 7.5 percent of your adjusted gross income (AGI), are adjusted for inflation.

The maximum deduction is based on your age at the end of the taxable year. The table below shows the maximum deductible long-term policy payment amounts for the 2023 and 2024 tax years. And no, the column tax year headings are not flipped. The 2024 limits in all age groups are less than in 2023.

Age by the end
of the tax year

2023

2024

40 or younger

$480

$470

41 to 50

$890

$880

51 to 60

$1,790

$1,760

61 to 70

$4,770

$4,710

71 and older

$5,960

$5,880

More doses of tax inflation tips: How are you feeling now, after all these health care tax numbers? I know it's a lot, but I hope this post took you less time to read than that five-year-old magazine you thumbed through during the interminable wait the last time you went to your doctor's office.

I also hope this information makes you feel a bit better about your taxes and how you can use these medical inflation-adjusted tax breaks to reduce them.

And the good tax medicine isn't over. This Part 5 post means we're half-way through this year's annual 10-part 2024 tax inflation series.

Check the box information below about ways to check out previous inflation series posts, as well as get a preview of what's ahead.

Thanks for reading. And thanks especially for your tax inflation interest and explanation patience!

This post on inflation's effects on 2024 medical-related expenses
is Part 5 of the ol' blog's annual series on myriad tax-related inflation adjustments. 
The 10-part series started with a look at next year's
income tax brackets and rates.
At the end of that first item there is a directory
of all of the 2024 tax-related inflation changes.
Note: The 2024 figures in this post apply to that tax year's return to be filed in 2025.
For comparison purposes, you'll also find 2023 amounts that apply
to this year's 2023 tax returns that will be due April 15, 2024.

 

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