IRS Boosts 2027 Contribution Limits for Health Savings Accounts

WASHINGTON — The Internal Revenue Service on May 29 announced its inflation-adjusted limits for Health Savings Accounts (HSAs) and associated high-deductible health plans (HDHPs) for the 2027 calendar year, allowing individuals and families to set aside more pre-tax money for medical expenses.

In Revenue Procedure 2026-24, the agency detailed that the annual contribution limit for an individual with self-only coverage will rise to $4,500, an increase of $100 from the 2026 limit. For individuals with family coverage, the contribution ceiling will increase by $250 to $9,000. These adjustments represent a 2.3% and 2.9% increase, respectively, reflecting persistent inflationary pressures on the economy.

These annual adjustments, while expected, require immediate attention from business owners to ensure their payroll and benefits systems are updated. For small and mid-sized companies, even minor changes to contribution limits can have a significant impact on both employee benefits planning and tax compliance, making proactive communication and system updates essential before open enrollment season begins.

To be eligible to contribute to an HSA, an individual must be enrolled in a qualifying high-deductible health plan. The IRS also adjusted the parameters for these plans for 2027. An HDHP must have a minimum annual deductible of at least $1,750 for self-only coverage (up from $1,700) and $3,500 for family coverage (up from $3,400). The maximum annual out-of-pocket expenses, which include deductibles and co-payments but not premiums, will also increase. For 2027, the out-of-pocket maximum is capped at $8,700 for self-only coverage and $17,400 for family coverage, rising from $8,500 and $17,000, respectively.

The catch-up contribution limit for individuals aged 55 and older was not adjusted for inflation and remains at $1,000. This means eligible individuals with self-only coverage can contribute a total of $5,500 in 2027, while those with family plans can contribute up to $10,000.

The announcement, which employers had been anticipating since early May, also included an increased limit for excepted-benefit health reimbursement arrangements (EBHRAs). For 2027, the maximum amount that may be made newly available for an EBHRA will be $2,250, an increase from the $2,200 limit in 2026.

HSAs are widely regarded by benefits experts as a powerful tool for managing healthcare costs due to their triple tax advantage: contributions are made on a pre-tax basis, the funds grow tax-free, and withdrawals for qualified medical expenses are also tax-free. This structure makes them a unique savings vehicle that can be used for current medical needs or saved for healthcare expenses in retirement.

In our experience, communicating these changes effectively to employees is as crucial as the back-end system updates. Business owners often underestimate the administrative lift. It is not just about updating payroll software; it is about helping employees understand how to leverage these powerful savings vehicles. This is a key part of our tax preparation and compliance services, where we help businesses navigate the complexities of benefits administration and ensure they are meeting their obligations while maximizing value for their team. Proactive planning prevents year-end headaches and potential penalties for both the company and its employees.

The continued rise in these limits comes as employees increasingly rely on HSAs to combat rising healthcare costs. According to 2025 data from HSA provider Lively cited by SHRM, the average account balance for its clients grew 11% year-over-year, indicating a strong trend toward utilizing these accounts for both spending and long-term saving.

For employers, the new limits necessitate a review of benefits documentation and communication strategies ahead of the open enrollment period for the 2027 plan year. It is also critical for payroll departments to ensure their systems are correctly configured to handle the new contribution maximums. According to IRS regulations, contributions exceeding the annual limit, whether made by an employer or employee, are not tax-deductible. Such excess contributions are included in the employee’s gross income and may be subject to a 6% excise tax.

Ultimately, these higher limits are a net positive, giving employees more room to save for healthcare costs tax-efficiently. However, for the business, it underscores the need for a robust financial strategy that integrates employee benefits with overall tax planning. We encourage all our clients to review their current benefits structure in light of these new figures. To discuss how these changes affect your specific business, contact C&S Finance Group LLC at csfinancegroup.com.

With the new figures now public, employers, benefits administrators, and payroll providers will begin the process of implementing the changes. All of the adjusted limits are set to take effect on January 1, 2027. Businesses should confirm with their plan administrators and software vendors to ensure a smooth transition for the upcoming plan year.