CPA Exam — REG (Regulation)Federal Taxation of IndividualsMedium
A client, single, age 55, is covered by a high-deductible health plan (HDHP). They contributed $4,000 to their Health Savings Account (HSA) in the current year. Their employer also contributed $1,000. What is the maximum deductible HSA contribution the client can take for the year?
- A$7,750
- B$3,850
- C$4,850
- D$8,750
Show answer & explanationAnswer & explanation
Correct answer: B. $3,850
For 2023, the maximum HSA contribution for an individual with self-only HDHP coverage is $3,850. The catch-up contribution for those age 55 or over is an additional $1,000. The total contribution limit (including employer contributions) is $4,850. The client's personal deductible contribution is limited to this amount less any employer contributions.
Why the other options are wrong
- A. This represents the family coverage limit for HSA contributions (not applicable here).
- C. This is the maximum total contribution (including catch-up and employer contributions) for an individual in this scenario ($3,850 + $1,000 catch-up). The client's personal deductible contribution is limited to the total less employer contributions. The client contributed $4,000. The employer contributed $1,000. Total contributions are $5,000. The maximum allowed is $3,850 (base) + $1,000 (catch-up) = $4,850. The client can only deduct their personal contribution up to the overall limit, considering the employer's contribution. Max deductible contribution for the client = $4,850 (total limit) - $1,000 (employer contribution) = $3,850.
- D. This represents the family coverage limit plus a catch-up contribution (not applicable here).
Health Savings Account (HSA) Deduction
Contributions to an HSA are tax-deductible (above-the-line), grow tax-free, and qualified distributions are tax-free. Eligibility requires participation in a high-deductible health plan (HDHP).
- Deductible contribution limits vary by year and coverage type (self-only vs. family).
- Individuals age 55 and older can make an additional 'catch-up' contribution.
- Employer contributions count towards the annual limit.
- Must be covered by an HDHP and not enrolled in Medicare.
Memory trick: HSA deduction: HDHP, age 55+ catch-up, employer contribution counts, above the line it floats.