Medical tax provisions adjusted in 2022 for inflation

Medical matters have been front and center for the last two years due to the COVID-19 pandemic.

Even without a global health crisis, taxpayers know they need to keep an eye on not just their wellbeing, but also on how medical expenses could create a tax outcome that’s healthier for the filers rather than the Internal Revenue Service.

There are a variety of medical tax breaks. And several of them are adjusted each year to account for inflation.

Here, in this Part 5 of the ol’ blog’s annual tax inflation series, is a look at those changes for the 2022 tax year.

Flexible spending account (FSA): 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 Obamacare, became law. And yes, it hasn’t been repealed and replaced. The ACA also allows for the possibility that the FSA limit could increase depending on inflation.

For the 2022 tax year, you can put up to $2,850 in your FSA. That’s a $100 increase from 2021’s $2,750 FSA contribution limit.

Inflation also helps out where companies provide some relief from FSA’s usual use-it-or-lose-it rule. Some employers allow their workers to roll over unused FSA money into the next benefits year. For 2022, then the IRS says you get a $20 inflation bump. The rollover amount goes from $550 in 2021 to $570 in 2022.

Health Savings Account (HSA): 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 that you have to pay more to reach that high 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 treatments,
• 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 May the 2022 inflation adjustments for HSAs and the HDHPs required to open these medical accounts.

To save you some time (although if you want to click on over to that earlier post, that’s great, too) the table below shows the HSA contribution and maximum out-of-pocket limits for high-deductible medical coverage for the 2022 and, for comparison, the 2021 tax years.

A note about the catch-up provision. It is set by law 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 being in honor of former Texas Republican Rep. Bill Archer. Whatever you call it, these accounts also are potentially affected by annual inflation changes.

Archer MSAs were 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 2022, 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 $2,450 (that’s up a tad from the $2,400 for 2021 tax year), but not more than $3,700 (that’s a $100 increase from the 2021 tax year). The maximum out-of-pocket expenses (other than for policy premiums) for self-only coverage in 2021 will be $4,950 (another increase, this time up $150 from 2021’s $4,800 cap).

For participants with family coverage in 2022, the floor for the annual deductible is $4,950 (up from 2021’s $4,800). However, the deductible next year cannot be more than $7,400 (a bigger jump from the $7,150 for this year).

And if you have family coverage, the out-of-pocket expense limit (again, this doesn’t cover premiums) is $9,050 in 2022, an increase from the tax year 2021 limit of $8,750.

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 maximum deduction is based on your age and the amounts that can be claimed on Schedule A, and which can be claimed 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 table below shows the deductible long-term policy payment amounts for the 2022 and 2021 tax years:

The only change from this year to next is in the 61 to 70 age range. The allowable deduction for individuals in this category drops by $10 in 2022.

More doses of tax inflation tips: Well, this post does have a lot of health care/tax numbers. But I hope it took you less time to read it than what you spent in the waiting room 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. 

As noted at the beginning of this post, this is Part 5 of the ol’ blog’s annual 10-part 2022 tax inflation series. That means we’re just half way through the series. More inflation figures are on their way in the coming days.

And as the box below indicates, you can find a directory to all 10 parts in the first post of the series.  

This post on 2022 medical tax breaks is Part 5
of the ol’ blog’s annual series on tax inflation adjustments. 
The 10-part series started with a look at next year’s income tax brackets and rates.
That first item also has a directory, at the end of the post,
of all of next year’s tax-related inflation updates.
If, after perusing this post on deductions and credits, you want to check out
other inflation adjustments for 2022, you’ll find the links, when posted, there.
Note: The 2022 figures in this post apply to that tax year’s returns to be filed in 2023.
For comparison purposes, you’ll also find 2021 amounts that apply to this year’s taxes that,
pending any COVID-19 Tax Day delays like we’ve faced the last couple of years, will be due April 15, 2022.

Thanks for reading and especially for your inflation explanation patience! And, in keeping with Part 5’s topic, stay tuned, stay safe, and stay healthy.

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