|
800-228-0008 -
402-330-2900 - FAX: 402-330-5078 -
Contact us
Latest IRS HSA guidance:
http://www.treas.gov/offices/public-affairs/hsa/
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
High Deductible Health Plans (HDHPs)
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. Federal law
requires that for 2008 the health insurance deductible be at least:
|
$1,100* |
Self-only
coverage |
|
$2,200* |
Family
coverage |
In addition, for 2008 annual out-of-pocket expenses under the plan (including
deductibles, co-pays, and co-insurance) cannot exceed:
|
$5,600* |
Self-only
coverage |
|
$11 ,200* |
Family
coverage |
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.
For 2008, you can contribute up to:
|
$2,900* |
Self-only
coverage |
|
$5,800* |
Family
coverage |
Catch-up HSA Contributions
Individuals age 55 and older can also make additional “catch-up”
contributions. The maximum annual catch-up contribution are:
|
2007 |
$800
|
|
2008 |
$900 |
|
2009 and after |
$1,000 |
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
2008, the extra contribution above the pro rated amount is included in
income and subject to an additional 10 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 10% 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 10%
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 10% 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.treas.gov/offices/public-affairs/hsa/.
|
