The IRS recently released guidance providing the 2022 inflation-adjusted amounts for Health Savings Accounts (HSAs).

An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high deductible health plan.” In addition, a participant can’t be enrolled in Medicare or have other health coverage (exceptions include dental, vision, long-term care, accident and specific disease insurance).

A high deductible health plan (HDHP) is generally a plan with an annual deductible that isn’t less than $1,000 for self-only coverage and $2,000 for family coverage. In addition, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) can’t exceed $5,000 for self-only coverage and $10,000 for family coverage. Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contribution to an HSA. This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for inflation.

In Revenue Procedure 2021-25, the IRS released the 2022 inflation-adjusted figures for contributions to HSAs, which are as follows: Annual contribution limitation. For the calendar year 2022, the annual contribution limitation for an individual with self-only coverage under an HDHP will be $3,650. For an individual with family coverage, the amount will be $7,300. This is up from $3,600 and $7,200, respectively, for 2021. High deductible health plan defined. For the calendar year 2022, an HDHP will be a health plan with an annual deductible that isn’t less than $1,400 for self-only coverage or $2,800 for family coverage (these amounts are unchanged from 2021). In addition, annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) won’t be able to exceed $7,050 for self-only coverage or $14,100 for family coverage (up from $7,000 and $14,000, respectively, for 2021).

There are a variety of benefits to HSAs. Contributions to the accounts are made on a pre-tax basis. The money can accumulate tax-free year after year and be can be withdrawn tax-free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term care insurance. In addition, an HSA is “portable.” It stays with an account holder if he or she changes employers or leaves the workforce. If you have questions about HSAs at your business, contact your employee benefits and tax advisors.

When you think back on this spring, you may fondly recall a substantial deposit made to your bank account by the federal government (if you were eligible). Economic Impact Payments were a focal point of the American Rescue Plan Act (ARPA), but it contains many other provisions also worth remembering. Here are four highlights:

1. The Child Tax Credit. For 2021, this refundable credit has been increased to $3,000 per child ($3,600 for children under six years of age), and qualifying children now include 17-year-olds. The increase is subject to modified adjusted gross income (AGI) phaseout rules. The IRS is scheduled to make periodic advance payments totaling 50% of the estimated amount due in the last half of 2021.

2. The Earned Income Tax Credit. For 2021, this credit has been increased for taxpayers with no qualifying children, and the age restrictions for those taxpayers have been relaxed. Taxpayers may use the greater of their 2019 or 2021 earned income to calculate the credit for 2021. For 2021, taxpayers who have a qualifying child but couldn’t previously meet the identification requirements for the qualifying child are still allowed the credit.

Also for 2021, the amount of investment income that a taxpayer can have and still earn the credit has been increased. Moreover, the existing exception to the credit’s joint filing requirement has been broadened. Under this exception, separated married people eligible to file jointly are allowed the credit even if they don’t file jointly.

3. The Child and Dependent Care Credit. For 2021, the amount of qualifying expenses for this refundable credit has been increased from:

The maximum percentage of qualifying expenses for which credit is allowed has been increased from 35% to 50%. The ARPA has changed the phaseout rules, which are based on AGI.

The increased dependent care assistance program exclusion amount will also affect the child and dependent care credit, as the amount of expenses taken into account for the credit is reduced by the amount excludable from the taxpayer’s income under the tax code.

4. The Health Care Premium Assistance Credit. For 2021 and 2022, this credit will be available for a larger percentage of premiums paid for health coverage bought from a Health Insurance Marketplace (commonly called an “Exchange”). Individuals whose income is greater than 400% of the poverty line will be eligible for (rather than barred from) the credit.

For 2020, individuals who, under the Affordable Care Act, were provided advances on the credit exceeding the amounts to which they were entitled aren’t obligated to pay back the excess. And, notwithstanding any other rules, individuals who receive unemployment compensation during 2021 are eligible for this credit under rules that increase the amount of the credit.

Many people received unemployment benefits last year. Under the American Rescue Plan Act, taxpayers with modified adjusted gross incomes of less than $150,000 can exclude $10,200 of their unemployment benefits for 2020. The exclusion is available to each spouse if a return is filed jointly. The IRS has stated that any taxpayers who already filed 2020 returns and didn’t exclude unemployment benefits shouldn’t file an amended return. Contact our firm for more information.

The COVID-19 pandemic has significantly affected our lives in many ways that are still playing out. For example, it has served as a reminder of how difficult an unexpected medical crisis can be to manage financially. It’s also reinforced the importance of guarding against the risk of such crises before they arise.

In this context, you may want to consider buying long-term care (LTC) insurance to protect yourself against high medical costs in the future. Before you commit to such a purchase, however, be sure to weigh the pros and cons.

LTC insurance policies can help pay for the cost of long-term nursing care or assistance with activities of daily living, such as eating or bathing. Many policies cover care provided in the home, an assisted living facility, or a nursing home — though some restrict coverage to only licensed facilities. Without this coverage, you’d likely need to pay these bills out of pocket.

Medicare or health insurance policies generally cover such expenses only if they’re temporary — that is, during a period over which you’re continuing to improve (for instance, recovering from surgery or a stroke). Once you’ve plateaued and are unlikely to improve further, health insurance or Medicare coverage typically ends.

That’s when LTC insurance can take over. But you need to balance the value of a policy against the cost of premiums, which can run several thousand dollars annually.

Whether LTC insurance is right for you will depend on a variety of factors, such as your net worth and estate planning goals. If you’ve built up substantial savings and investments, you may prefer to rely on them as a potential source of LTC funding rather than paying premiums for insurance you might never use.

If you’ve socked away less and want to have something left for your heirs after you’re gone, LTC insurance might be a good solution. But it will be effective only if your premiums are reasonable.

If you determine LTC insurance may be right for you, the younger you are when you buy a policy, the lower the premiums typically will be. Plus, the chance of being declined for a policy increases with age. Having certain health conditions, such as Parkinson’s disease, can also make it more difficult, or impossible, for you to obtain an LTC policy. If you can still get coverage, it likely will be much more expensive.

So, buying earlier in life may make sense. But you must keep in mind that you’ll potentially be paying premiums over a much longer period. You might be able to trim premium costs by choosing a shorter benefit period or a longer elimination period.

Only you can decide whether LTC insurance will likely benefit you and your loved ones. Gather as much information as possible before making the decision. Contact our firm for assistance.