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| HSA Basics |
- What is a Health Savings Account (HSA)?
- A Health Savings Account is a tax-sheltered account used for qualified medical expenses. An HSA allows you to pay for current health expenses and save for future medical and retiree healthcare expenses on a tax-free basis. Contributions, earnings, and distributions all are exempt from federal income taxes when funds are used for qualified medical expenses.
- Who can have an HSA?
- An HSA can be established by an eligible individual covered under a high-deductible health plan and who is not entitled to benefits under Medicare (generally, has not yet reached age 65); and may not be claimed as a dependent on another person’s tax return. The individual may not also be covered by addtional medical plans providing benefits before the deductible is met on the high-deductible health plan, including general purpose flexible spending accounts (FSAs) for him/herself or his/her spouse.
- What is a High Deductible Health Plan (HDHP)?
- An HDHP is a health plan that meets requirements regarding deductibles and out-of-pocket expenses. For self-only coverage, an HDHP must have an annual deductible of at least $1,150 and annual out-of-pocket expenses not exceeding $5,800. For family coverage, an HDHP must have an annual deductible of at least $2,300 and annual out-of-pocket expenses not exceeding $11,600. A plan does not fail to qualify as an HDHP merely because it does not have a deductible (or has a small deductible) for preventive care (e.g., first dollar coverage for preventive care). However, except for preventive care, a plan may not provide benefits for any year until the deductible for that year is met.
- What other types of health coverage may an individual have and still qualify to have an HSA?
- Generally, an individual will be able to maintain an HSA account with the following additional types of insurance: Coverage provided by permitted insurance – worker’s compensation, automobile insurance medical coverage, insurance for a specific disease or illness (ex: cancer). Also allowed are plans that provide coverage for accidents, disability, dental care, vision care and long-term care.
- Who may contribute to an HSA?
- Any eligible individual may contribute to an HSA. For an HSA established by an employee, the employee, the employee's employer or both may contribute to the HSA of the employee in a given year. For an HSA established by a self-employed (or unemployed) individual, the individual may contribute to the HSA. Family members may also make contributions to an HSA on behalf of another family member as long as that other family member is an eligible individual. Total contributions may not exceed annual contribution limits.
- What happens to the employee’s HSA account if he/she leaves the job?
- The HSA Account is portable – the employee owns it. If employees do terminate employment, the Customer Support Center can assist with options for continued use of the HSA account.
- Can I set up HSA accounts for my kids?
- Generally, no. To be eligible for an HSA account, the person may not be claimed as a dependent on someone else’s tax return.
- What happens to my HSA account if I die?
- Upon death, any funds remaining in the HSA account become the property of the beneficiary named on the account. If no beneficiary is named, the account becomes part of your estate.
- Can my spouse and I have a joint account?
- No. HSAs are individual accounts, like IRAs, and must be established for one individual. Your spouse can contribute to your account and can be added as an 'authorized signer', eligible to use your account funds. He/she may be eligible to establish his/her own HSA if covered by an HDHP.
- How do HSAs differ from healthcare flexible spending accounts (FSAs)?
- Both HSAs and FSAs allow an individual to pay medical bills with pre-tax dollars. One key difference; however, is that HSA balances can rollover from year to year, while FSA money is forfeited if it remains in the account at the end of the year.
- Can I have an HSA and an FSA?
- Yes, but only under certain circumstances. If the flexible spending account (FSA) is limited to dental or vision expenses or is set up to pay for medical expenses after you meet the plan’s deductible, then you are still eligible for an HSA.
- Can I have an HSA and an HRA?
- Yes, but only under certain circumstances. If the health reimbursement arrangement (HRA) is limited to dental or vision expenses or is set up to pay for medical expenses after you meet the plan’s deductible, then you are still eligible for an HSA. Also, if the HRA can only be used after you retire, you are still eligible for an HSA.
- Can I rollover my HSA into an IRA?
- No. HSA funds can only be rolled over into another HSA account, not an IRA.
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| Contributions |
- Is there a limit on the amount contributed to an HSA account each year?
- Yes. Account holders may contribute an amount up to the IRS annual limit for the year, whichever is less. This includes any contributions made by your employer. For 2009, the IRS limit is $3,000 for single coverage and $5,950 for family coverage.
- Are catch up contributions allowed in HSA accounts?
- Yes. Individuals age 55 and up may make catch up contributions each year. The catch up contribution limit is $1,000 for 2009. After reaching age 65 and enrolling in Medicare, HSA contributions, including catch up, can no longer be made to the account.
- Is there a deadline for contributing to an HSA account?
- Yes, an individual may contribute to an HSA account, up to the IRS limit, until their tax deadline for the year, generally April 15th of the following year. If desired, the entire contribution may be made on the first day of the year or as payments spread throughout the year.
- Are rollover contributions allowed to an HSA account?
- Rollover contributions from Archer MSAs and other HSAs are permitted into an HSA. Rollovers from an IRA, from a health reimbursement arrangement (HRA) or from a health flexible spending arrangement (FSA) to an HSA are permitted with certain restrictions. Please contact Customer Support for more information on rollovers from these types of accounts.
- If one or both spouses have family coverage, how is the contribution limit computed?
- If either spouse has family coverage, both are treated as having family coverage. The contribution limit for the spouses is the annual family coverage limit established by the IRS. However, both spouses may make the catch up contributions for individuals age 55 or over without exceeding the family coverage limit. Contributions may be made in any amount to either account, as long as the total does not exceed the IRS limit for family coverage (without regard to catch up contributions).
- If an Employer contributes to Employee HSA accounts, when must these contributions be deposited?
- Employer contributions to HSA accounts may be made at any time up until the tax deadline for the year, generally April 15th of the year following the contribution year. Employers may elect to deposit contributions with each payroll deposit of employee contributions or may make separate deposits monthly, quarterly, annually or on another schedule.
- How are deposits made to the HSA account?
- If the HSA account is offered through the HSA accountholder's employer, the employer may deduct the amount from each pay check and send it to the custodian for deposit into the account. If accountholders wish to make other deposits, deposit instructions will be provided by the Customer Support Center.
- What happens to the contributions if they are not used by the end of the year?
- Any funds left in the HSA account at the end of the year will remain in the account, growing tax-free to cover medical expenses at a future date. Any funds remaining at age 65 may be withdrawn without penalty, simply paying ordinary income tax on the amount withdrawn.
- Can my spouse contribute to my account?
- Yes. As long as you are qualified for an HSA account, your spouse may contribute to the account on your behalf.
- How will my HSA contributions be invested?
- HSA contributions will be deposited into your health savings account, a deposit account with a financial institution. Investment options such as a brokerage account may also be available to you. Contact the Customer Support Center for more information.
- Do I have to fund my account every year?
- No, you do not have to fund your account each year. However, it is to your advantage to make annual contributions in order to take full advantage of the tax savings, as well as save money for retirement. Remember, you are allowed to contribute to the account and fully deduct your contributions 100% every year as long as you are covered by your HDHP.
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| Distributions |
- What can I use my HSA funds for?
- In order to maintain the tax-free status of your HSA dollars, you must use the funds for "qualified medical expenses". The IRS provides a representative list (not complete) in Publication 502 which you may use as a reference to help determine what expenses are allowed. This publication is available within your account under the Education menu within the Resource Links section. You may also contact the Customer Support Center or the IRS regarding qualified expenses for further assistance.
- Can I use my HSA to pay for health expenses not covered by my insurance?
- Yes. You can use your HSA to pay for any health care service or product allowed under Section 213d of the IRS code. These expenses include: Acupuncture, Braille books and magazines, Birth Control pills, Dentures, Laboratory fees, Dental fees, Orthodontia, Eyeglasses and Contact lenses, Hearing Aids, Obstetric expenses, Psychologist fees, Lead-based paint removal, Alcoholism treatment, Chiropractors, Oxygen and much more.
- Are Health insurance premiums considered “qualified” expenses?
- Generally, health insurance premiums are not qualified medical expenses except for qualified long-term care insurance, COBRA health care continuation coverage, and health care coverage while an individual is receiving unemployment compensation. In addition, for individuals over age 65, premiums for Medicare and the employee share of premiums for employer-sponsored health insurance, including premiums for employer-sponsored retiree health insurance can be paid from an HSA.
- What if I don't have enough money in my account to pay for my medical expenses?
- Any medical expenses which you pay from your own personal account may be reimbursed to you from the HSA account once funds are available. Reimbursement methods may vary by HSA custodian so review your program materials or contact the Customer Support Center for information on how to complete your reimbursement.
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| Using the HSA Account |
- How do HSA account holders pay for medical expenses?
- Account holders will receive a debit card to pay for medical expenses which will then be deducted from the account. Checks may also be available with some accounts.
- How should I pay for services at the doctor's office?
- First, show your health insurance card and ask the doctor's office to submit the charges as a claim on your insurance, even if you have not yet met your deductible. This will ensure that you receive the network rate for the services performed. You will then receive notification from the insurance company/doctor's office if payment is due. You can then pay with your debit card, or checks if applicable. Note: some doctors request that you make a small copayment at the time services are rendered. If you have not met your deductible for the year, simply complete payment by using your debit card.
- How should I pay for prescriptions at the pharmacy?
- First, show your health insurance card to ensure that you get the network rate for your prescription. Then, pay for the prescription with your debit card according to the payment schedule provided in your health plan, if included.
- How can I save money on my medical expenses?
- Be a smart consumer of your healthcare. Compare the fees charged by your doctor to others recommended to you or those with a good reputation in your area. Not all doctors charge the same amount, even when covered in the same network. Also be aware of prescription savings that may be available to you. Large national discount stores offer some prescriptions for just a few dollars, and many local stores are matching these rates. For more tips on saving, contact the Customer Support Center.
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| Taxation of HSAs |
- What is the taxability of Employer contributions to employee HSA accounts?
- Employer contributions are treated as employer-provided coverage for medical expenses under the health plan, and as such are not included in the employee’s gross income. Employees cannot deduct employer contributions on their federal tax returns as HSA contributions.
- What IRS reporting will I have to do each year for tax purposes?
- You will need to complete IRS Form 8889 to be filed with your Form 1040 income tax filing each year, whether you itemize your deductions or not. This form reports your deposits and withdrawals from the HSA account. We provide an online workbook based on your account usage to assist you with form completion. For specific assistance with tax reporting of your HSA account, please see your personal tax advisor.
- What is the tax treatment of contributions made to an HSA Account? Employer Contributions? Employee Contributions? Other family member contributions?
- Contributions you and your family make to your HSA account are tax-free. You may deduct them “above the line” on your tax return each year (unless your contributions have been deducted from pay on a pre-tax basis, and as such are already tax-free). Contributions made by your employer are considered coverage for medical expenses, and thus, are not included in your W-2 gross income. For specific assistance with the taxability of your HSA account, please see your personal tax advisor.
- How are distributions from an HSA taxed?
- Distributions from an HSA used exclusively to pay for qualified medical expenses of the account beneficiary, his or her spouse, or dependents are excludable from gross income. In general, amounts in an HSA can be used for qualified medical expenses and will be excludable from gross income even if the individual is not currently eligible for contributions to the HSA. However, any amount of the distribution not used exclusively to pay for qualified medical expenses of the account beneficiary, spouse or dependents is includable in gross income of the account beneficiary and is subject to an additional 10% tax on the amount includable, except in the case of distributions made after the account beneficiary's death, disability, or attaining age 65.
- Will I pay tax penalties on fees my HSA custodian deducts from my account? (These aren't qualified medical expenses.)
- The IRS has ruled that nominal bank and custodial fees withdrawn directly from the account are allowable withdrawals and are not subject to taxes or penalties.
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