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Latest IRS HSA guidance: http://www.treasury.gov/resource-center/faqs/Taxes/Pages/Health-Savings-Accounts.aspx
A Health Savings Account (HSA) is an
account that you can put money into to save for future medical
expenses. There are certain advantages to putting money into these
accounts, including favorable tax treatment. HSAs were signed into
law by President Bush on December 8, 2003.
Who Can Have an HSA
Any adult can contribute to an HSA if
they:
- Have coverage under an HSA-qualified
“High Deductible Health Plan” (HDHP)
- Have no other first-dollar medical
coverage (other types of insurance like specific injury insurance
or accident, disability, dental care, vision care, or long-term
care insurance are permitted).
- Are not enrolled in Medicare.
- Cannot be claimed as a dependent on
someone else’s tax return.
Contributions to your HSA can be made
by you, your employer, or both. However, the total contributions are
limited annually. If you make a contribution, you can deduct the
contributions (even if you do not itemize deductions) when
completing your federal income tax return.
Contributions to the account must stop
once you are enrolled in Medicare. However, you can keep the money
in your account and use it pay for medical expenses
tax-free
You must have coverage under an HSA-qualified “high
deductible health plan” (HDHP) to open and contribute to an HSA.
Generally, this is health insurance that does not cover first dollar
medical expenses.
|
2012 HSA and High
Deductible Health Plan (HDHP)
Requirements |
|
|
Individual
Coverage |
Family
Coverage |
|
Minimum
Deductible |
$1,200 |
$2,400 |
|
Maximum Deductible and
Co-Payment Out-of-Pocket |
$6,050 |
$12,100 |
|
Maximum Contribution
Limit |
$3,100 |
$6,250 |
|
Catch-Up Contribution age 55
or older |
$1,000 |
$1,000 |
|
2013 HSA and High
Deductible Health Plan (HDHP)
Requirements |
|
|
Individual
Coverage |
Family
Coverage |
|
Minimum
Deductible |
$1,250
|
$2,500
|
|
Maximum Deductible and
Co-Payment Out-of-Pocket |
$6,250 |
$12,500 |
|
Maximum Contribution
Limit |
$3,250
|
$6,450
|
|
Catch-Up Contribution age 55
or older |
$1,000
|
$1,000
|
In general,
the deductible must apply to all medical expenses (including
prescriptions) covered by the plan. However, plans can pay for
“preventive care” services on a first-dollar basis (with or without
a co-pay). "Preventive care" can include routine pre-natal and
well-child care, child and adult immunizations, annual physicals,
mammograms, pap smears, etc.
Finding HDHP Coverage
Any
company that sells health insurance coverage in your state may offer
HDHP policies. Although Treasury cannot recommend any specific names
of companies selling these policies, you should be able to find a
qualified policy by contacting your current insurance company, an
agent or broker licensed to sell health insurance in your state, or
your State insurance department.
HSA Contributions
You can
make a contribution to your HSA each year that you are eligible.
Catch-up HSA
Contributions
Individuals age 55 and older can also make
additional “catch-up” contributions.
Determining Your
Contribution
Your eligibility to contribute to an HSA is
determined by the effective date of your HDHP coverage. If you do
not have HDHP coverage for the entire year, you will not be able to
make the maximum contribution. All contributions (including catch-up
contributions) must be pro-rated. Your annual contribution depends
on the number of months of HDHP coverage you have during the year
(count only the months where you have HDHP coverage on the first day
of the month). For years after 2006 a special rule allows you to
contribute the maximum amount for the year as long as you have
coverage for December. However, if you fail to remain covered for 12
months, the extra contribution above the pro rated amount is
included in income and subject to an additional 20 percent
tax.
Contributions can be made as late as
April 15 of the following year.
Using Your HSA
You can use
the money in the account to pay for any “qualified medical expense”
permitted under federal tax law. This includes most medical care and
services, and dental and vision care, and also includes
over-the-counter drugs such as aspirin.
You can generally not use the money to
pay for medical insurance premiums, except under specific
circumstances, including:
- Any health plan coverage while
receiving federal or state unemployment benefits.
- COBRA continuation coverage after
leaving employment with a company that offers health insurance
coverage.
- Qualified long-term care
insurance.
- Medicare premiums and out-of-pocket
expenses, including deductibles, co-pays, and coinsurance
for:
- Part A (hospital and inpatient services)
- Part B
(physician and outpatient services)
- Part C (Medicare HMO and
PPO plans)
- Part D (prescription drugs)
You can use the money in the account to
pay for medical expenses of yourself, your spouse, or your dependent
children. You can pay for expenses of your spouse and dependent
children even if they are not covered by your HDHP.
Any amounts used for purposes other
than to pay for “qualified medical expenses” are taxable as income
and subject to an additional 20% tax penalty. Examples
include:
- Medical expenses that are not
considered “qualified medical expenses” under federal tax law
(e.g., cosmetic surgery).
- Other types of health insurance
unless specifically described above.
- Medicare supplement insurance
premiums.
- Expenses that are not medical or
health-related.
After you turn age 65, the 20%
additional tax penalty no longer applies. If you become disabled
and/or enroll in Medicare, the account can be used for other
purposes without paying the additional 20% penalty.
Advantages of HSAs
Security – Your high deductible
insurance and HSA protect you against high or unexpected medical
bills.
Affordability – You should be
able to lower your health insurance premiums by switching to health
insurance coverage with a higher deductible.
Flexibility – You can use the
funds in your account to pay for current medical expenses, including
expenses that your insurance may not cover, or save the money in
your account for future needs, such as:
- Health insurance or medical expenses
if unemployed
- Medical expenses after retirement
(before Medicare)
- Out-of-pocket expenses when covered
by Medicare
- Long-term care expenses and
insurance
Savings – You can save the money
in your account for future medical expenses and grow your account
through investment earnings.
Control – You make all the
decisions about:
- How much money to put into the
account
- Whether to save the account for
future expenses or pay current medical expenses
- Which medical expenses to pay from
the account
- Which company will hold the
account
- Whether to invest any of the money
in the account
- Which investments to make
Portability – Accounts are
completely portable, meaning you can keep your HSA even if
you:
- Change jobs
- Change your medical coverage
- Become unemployed
- Move to another state
- Change your marital status
Ownership – Funds remain in the
account from year to year, just like an IRA. There are no “use it or
lose it” rules for HSAs.
Tax Savings – An HSA provides you
triple tax savings:
(1) tax deductions when you contribute to
your account;
(2) tax-free earnings through investment;
and,
(3) tax-free withdrawals for qualified medical
expenses.
What Happens to My HSA When I
Die?
If your spouse becomes the owner of the account, your
spouse can use it as if it were their own HSA. If you are not
married, the account will no longer be treated as an HSA upon your
death. The account will pass to your beneficiary or become part of
your estate (and be subject to any applicable taxes).
Opening Your Health Savings
Account
Banks, credit unions, insurance companies and other
financial institutions are permitted to be trustees or custodians of
these accounts. Other financial institutions that handle IRAs or
Archer MSAs are also automatically qualified to establish
HSAs.
Need More Information about HSAs?
Treasury’s web site has additional information about Health
Savings Accounts, including answers to frequently asked questions,
related IRS forms and publications, technical guidance, and links to
other helpful web sites. Treasury’s HSA website can be found through
http://www.treas.gov (click on “Health
Savings Accounts”) or directly at the following address: http://www.treasury.gov/resource-center/faqs/Taxes/Pages/Health-Savings-Accounts.aspx. | 