Please find below a series of commonly asked questions and answers about Health Savings Accounts (HSAs). This information is not meant to take the place of advice from your legal or tax advisor. Meredith Village Savings Bank is not engaged in rendering tax or legal advice and we urge you to consult with your accountant or tax advisor before opening a health savings account to determine if it is appropriate for you.
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A Health Savings Account is a special tax-advantaged savings account similar to a traditional Individual Retirement Account (IRA) but designated for medical expenses. An HSA allows you to pay for current covered health care expenses and save for future qualified medical and retiree health care expenses on a tax-favored basis.
Contributions, investment earnings, and qualified distributions all are exempt from federal income tax, FICA (Social Security and Medicare) tax and state income taxes (for most states).
Unused HSA dollars carry over from year to year, so you can save for future medical expenses. You own your HSA at all times and can take it with you when you change medical plans, change jobs or retire. This means the funds in the account, both yours and your employer's, if they contribute are non-forfeitable and portable.
To be eligible to contribute to an HSA, you must be covered by a qualified high-deductible health plan (HDHP) and have no other first dollar insurance coverage. You may use your HSA to help pay for medical expenses covered under a high-deductible health plan, as well as for other common qualified medical expenses.
Unused HSA funds remain in your account and carry over from year to year. All the money you deposit into your HSA up to the maximum annual contribution limit is generally 100% tax-deductible for federal income tax, FICA (Social Security and Medicare) tax, and in most states, state income tax. This makes HSA dollars tax-free in most cases.*
You can use these tax-free dollars to pay for expenses covered under your HDHP until you have met your deductible. The insurance company pays covered medical expenses above your deductible, except for any coinsurance; you can pay coinsurance costs with tax-free money from your HSA. In addition, you can use tax-free dollars for qualified medical expenses not covered by the HDHP, such as dental, vision and alternative medicines.
The funds also can be used for other, non-medical expenses, but then your dollars are subject to ordinary tax, plus a 10% penalty if you are under age 65. The 10% penalty does not apply if the distribution occurs after you reach age 65, become disabled or die; however ordinary income tax may still apply.
Funds remaining in your account at year-end are yours to carry over and accumulate for your future healthcare expenses. You may choose not to spend your HSA dollars on small expenses, instead using after-tax dollars to meet these expenses, and leaving your HSA dollars to grow for future needs. Choosing the expenses on which to spend your HSA dollars and which to pay out-of-pocket with after-tax dollars is entirely up to you.
If you meet all the criteria listed below you are eligible to open and contribute to an HSA. The Medicare Act of 2003, which established HSAs, defines "eligible individuals" as those who:
You may still open and contribute to an HSA if you have certain limited coverage approved by the IRS, such as dental, vision and long-term care insurance. In addition, you are still eligible to establish an HSA if you are entitled to benefits under an Employee Assistance Plan (EAP), disease management or wellness program or have a discount card for prescriptions.
After you open your HSA, making contributions helps you build a balance to assist with current and future health care expenses. Anyone, including your employer or family members may contribute to your HSA. You can make contributions by payroll deductions (if available) or by after-tax contributions.
Payroll deductions: If your employer offers the option, you may specify a regular contribution to be deducted from your paycheck. This contribution will likely be made before Social Security, federal, and most state income taxes are deducted.
After-tax contributions: You may choose to make all or part of your annual account contributions to your HSA by making “after-tax” contributions to your account. These contributions, which you can make by writing a personal check, may be deducted on your income tax return, using IRS Form 1040 and Form 8889.
Employers may make contributions to your account as well; while you do not take a deduction for these contributions, they are excluded from your gross income.
Money is deposited to your HSA through payroll deduction, if your employer participates in such a program; or you may make deposits directly to your account. Deposits may be made periodically or in a lump sum.
An HSA may be just one available option for your health insurance needs. For instance, you may also have available to you the choice of the more traditional lower deductible plan without an HSA.
When considering the best choice for your situation, consider the following: unless you have a significant, catastrophic-type medical claim, you may not recoup the amount of money you pay in employee contributions for traditional plans (such as a PPO) or even Health Reimbursement Accounts (HRAs).
Enroll in a high-deductible health plan (HDHP) and then visit your nearest MVSB office to open your account. You will receive a packet detailing all of the information you need to know about your HSA.
Tax-advantaged:
Flexible:
Portable: Accounts move with you when you change medical plans, change employers or retire.
Savings mechanism for future health needs: Unused funds can grow through interest and can be "banked" for future medical expenses.
Contributions can come from multiple sources: As long as you are covered by a qualified HDHP, you, your employer, family members, or anyone else may contribute to your HSA up to the maximum annual contribution limit.
With a high-deductible health plan, you have the security of comprehensive health care coverage. Like a traditional plan, you are responsible for paying for your qualified medical expenses up to the in-network deductible; however, the deductible will be higher, and you can use HSA funds to pay for these expenses.
After the annual deductible is met, you are responsible only for a portion of your medical expenses through coinsurance or co-payments, just as with a traditional health plan. For 2010, the minimum HDHP deductible by law is $1,200 for individuals and $2,400 for families.
For 2010, the maximum out-of-pocket expenses by law (including deductible and co-payments, but not including premiums) cannot exceed $5,950 for individuals and $11,900 for families.
The deductible and maximum out-of-pocket expenses are indexed annually for inflation.
The health insurer or your employer can verify the status of your coverage. In addition, the words "qualifying (or qualified) high-deductible health plan" or a reference to IRC Section 223 will be included in the declaration page of your policy or in another official communication from the insurance company.
To be a qualified plan the deductible cannot be below the annually declared minimum and out-of-pocket maximums cannot exceed the maximum as outlined below:
A qualified HDHP with family coverage may have deductibles for both the family as a whole (an umbrella deductible) and for individual family members (embedded deductibles). If either the deductible for the family (umbrella) or the deductible for an individual (embedded) is below the minimum annual deductible for family coverage ($2,400), the plan is not a qualified HDHP.
Both HSAs and FSAs allow you to pay for qualified medical expenses with pre-tax dollars. One key difference, however, is that HSA balances can carry over from year to year, while FSA money cannot.
You may choose to use a Limited Purpose FSA to pay for eligible heath care expenses (such as vision or dental) and save your HSA dollars for future health care needs. You may use Limited Purpose FSA dollars to reimburse yourself for expenses not covered by your high-deductible health plan, such as:
The funds in a regular savings account do not have the tax advantages of an HSA.
No, only one person can be named the account owner. If both you and your spouse have qualified HDHP coverage, you must each have your own account.
If both you and your spouse have family coverage under qualified high-deductible health plans, the maximum total tax-deductible HSA contribution both of you can make (including employer contributions) is the IRS limit for family coverage. In 2009, that amount was $5,950 but it has increased to $6,150 for 2010. This contribution can be divided between you and your spouse however you wish. If you and/or your spouse are eligible to make catch-up contributions, you may each contribute your eligible catch-up contribution to your individual HSA.*
Offering an HSA is an excellent way to help you save for future medical expenses and pay for current expenses with tremendous tax advantages.
Yes, you may have more than one HSA and you may contribute to them all. However, this does not give you any additional tax advantages, as the total contributions to your accounts cannot exceed the annual maximum contribution limit. Contributions from your employer, family members, or any other person must be included in the total.
Yes, you can have both an HSA and an IRA.
Although HSAs operate under many of the same rules that apply to traditional IRAs, an HSA is not an IRA; it is a tax-advantaged savings account for current and future medical expenses. (However, it may be used to pay for non-medical expenses without penalty after the accountholder turns 65, so it can be used to save for retirement.)
No. You are not eligible for an HSA if you are covered by any other health plan that is not a qualified HDHP.
Yes, as long as you haven't received any VA medical benefits during the preceding three months and you are currently enrolled in a qualified HDHP.
Yes. You are eligible to open and contribute to an HSA as long as you are not enrolled in benefits under Medicare and are covered by a qualified HDHP.
Yes. If you choose to be covered by the qualified HDHP, you may open and contribute to an HSA. It does not matter what options your employer offers. It matters only which option you elect.
Yes. As long as you are covered by a qualified HDHP you may also be covered for any benefit provided by “permitted insurance” as defined by IRS code. Permitted insurance includes insurance for a specified disease or illness, such as cancer, diabetes, asthma or congestive heart failure. Other permitted insurances include policies that provide coverage for accidents, disability, dental care, vision care or long-term care.
Yes, you may make contributions for this year, provided you are covered by a qualified HDHP no later than the first of December.
First-dollar coverage means that you may receive a reimbursement for expenses immediately, without first meeting a deductible.
First-dollar benefits paid for “permitted insurance” expenses (such as vision and dental paid through a Limited Purpose FSA) or preventive care do not disqualify you from making HSA contributions.
First-dollar reimbursements for covered expenses from the following may make you ineligible for an HSA:
No, only one person can be named the account owner. If both you and your spouse are covered by qualified HDHPs, you must each have your own account.
The only age-related restriction for HSAs is that once an HSA account owner becomes enrolled in Medicare, contributions to the account must stop. Generally this means at age 65. If, however, you become disabled and entitled to Medicare, contributions to the account must stop for the month in which you become enrolled.
If the person can be claimed as a dependent on someone else's tax return, they are ineligible to open an HSA. Although not an age restriction, generally you cannot open an HSA for your child if you, or someone else, claims them as a dependent.
If you become disabled and enroll in Medicare, contributions to your HSA must stop as of the first of the month in which you become enrolled.
You may use your HSA funds to pay Medicare Part A and/or B premiums. Payment of Medicare premiums is a qualified expense and a tax-free distribution. HSA distributions used for non-qualified expenses will be subject to ordinary income tax but exempt from penalty.
Your HSA is portable. This means that you can take your HSA with you when you leave and continue to use the funds you have accumulated. Funds left in your account continue to grow tax-free. If you are covered by a qualified HDHP, you can even continue to make tax-free contributions to your HSA.
There are no health related screenings or requirements to open an HSA at Meredith Village Savings Bank.
No. You are not eligible to open an HSA or contribute to an existing HSA because you are not covered by a qualified HDHP. However, any distributions you make from an existing HSA for qualified expenses continue to be tax-free and excludable from your gross income.
No. A general-purpose health FSA or HRA that pays first-dollar benefits is the same as family coverage, because it is available to reimburse the qualified expenses of the employee and the employee's spouse and dependents. Consequently, if either you or your spouse participates in a general-purpose health FSA or HRA, neither of you will be eligible to contribute to an HSA.
No. There are no salary restrictions — minimum or maximum — that make you ineligible to open and contribute to an HSA.
No. There are no salary restrictions — minimum or maximum — that make you ineligible to open and contribute to an HSA.
No. You may open your HSA with any qualified financial institution, regardless of which insurance company provides your HDHP.
No. You may open your HSA with any qualified financial institution, regardless of which insurance company provides your HDHP.
No. Only cash may be contributed to your MVSB HSA.
No. Your contributions to your HSA are limited to a maximum annual contribution adjusted each year by the IRS. Your contributions to an IRA have no bearing on your HSA and vice versa.
Yes. If you are 55 or older and covered by a qualified HDHP, you can make additional catch-up contributions each year until you are enrolled in Medicare benefits. The maximum annual catch-up contributions to an HSA per year are as follows:
If both spouses have HSAs, then each is permitted full catch-up contributions, provided they are covered by a qualified HDHP for the entire year.
If you will reach age 55 before the close of the calendar year, you may make a full year's catch-up contribution, provided you are covered by a qualified HDHP no later than December 1st.
Yes. If you are 55 or older and covered by a qualified HDHP, you can make catch-up contributions each year until you are enrolled in Medicare benefits. The maximum annual catch-up contributions to an HSA per year are as follows:
If both spouses have HSAs, then each is permitted full catch-up contributions, provided they are covered by a qualified HDHP for the entire year.
If you will reach age 55 before the close of the calendar year, you may make a full year's catch-up contribution, provided you are covered by a qualified HDHP no later than December 1st.
For 2010, the combined maximum contributions to your HSA, including any made by your employer to your account, are $3,050 if you have individual coverage and $6,150 if you have family coverage. If you turn age 55 or older in 2010, you may add up to $1,000 more as a “catch up” contribution.
These amounts are valid as long as you enroll in qualified HDHP coverage before the first day of December, meaning you have held at least one full month of HDHP coverage, and so long as you continue to maintain qualified HDHP coverage for the next 12 months (13 months in total).
Yes, you may have more than one HSA and you may contribute to them all. However, this does not give you any additional tax advantages, as the total contributions to your accounts cannot exceed your maximum annual contribution. Contributions from your employer, family members, or any other person must be included in the total.
Contributions may be made either directly by you to your HSA or through payroll deduction, if your employer participates. Either way, your contributions are not subject to federal income tax, FICA (Social Security and Medicare) tax and for most states, state income tax. If you make your contributions through payroll deductions, the amount is taken from your payroll before taxes are calculated. If you make deposits directly to your account, you may take an “above the line” deduction when filing your annual tax return.
"Above the line" means you reduce your taxable income regardless of whether you itemize or use the standard deduction on your income tax form. You may deduct the contribution amount, subject to the maximum annual contribution limits from your taxes, at filing time.
Employers may make contributions to your account as well; while you do not take a deduction for these contributions, they are excluded from your gross income.
If a family member or anyone else makes a contribution to your HSA, the tax advantages apply to you and not the person making the contribution. You may deduct the contribution amount when filing your annual income taxes, in the same way you would if you had deposited the post-tax contribution on your own.
Employers may make contributions to your account as well; while you do not take a deduction for these contributions, they are excluded from your gross income.
All contributions to the account are combined and subject to maximum annual contribution limits.
Contributions for the taxable year can be made in one or more payments at your convenience. If your employer contributes to your account, they too may make either a lump sum or periodic deposits to your account.
The IRS determines maximum annual contributions by your coverage type (single or family) annually. The annual total of all contributions to your account, from all sources, cannot exceed the IRS maximum annual contribution.
If the HSA account owner has family coverage with individual deductibles for each family member, they are still subject to a 2010 maximum annual contribution limit of $6,150 plus up to $1,000 in additional catch up dollars if they turn 55 or older during the year.
No. You are not eligible to contribute because you are not covered by a qualified HDHP. However, any distributions you make from your HSA for qualified expenses continue to be free of federal taxes and state tax (for most states) and excludable from your gross income. Remember that unused HSA dollars carry over from year to year.
Catch-up contributions are permitted contributions made by an eligible participant that are in excess of maximum annual contribution limits. Eligible participants are HSA owners who are covered by a qualified HDHP and age 55 or older.
Catch-up contributions to your HSA are available for the calendar year in which you reach age 55. If you will reach age 55 before the close of the calendar year, you may make a full year's catch-up contribution, provided you are covered by a qualified HDHP no later than December 1st.
No. A general-purpose health FSA or HRA that pays first-dollar benefits is the same as family coverage, because it is available to reimburse the qualified expenses of the employee and the employee's spouse and dependents. Consequently, if either you or your spouse participates in a general-purpose health FSA or HRA, neither of you will be eligible to contribute to an HSA.
If you contribute more than your maximum annual contribution to your HSA, you may withdraw the excess without penalty up until April 15 of the following year. After that time, the funds are subject to both ordinary income and an excise tax.
No. You have until the filing date of your federal tax return to take a distribution of the excess contribution from your HSA without incurring a 6 percent excise tax. The amount of the excess contribution is includable in your gross income for tax purposes.
Based on your employer's cafeteria plan rules, you may be allowed to increase, decrease, start or stop your HSA contributions at any time.
You can still make your maximum annual contribution. Your eligibility to contribute to an HSA is determined by the effective date of your qualified HDHP coverage. Your contribution for any given year depends on your enrolling in HDHP coverage by December 1st of that year and maintaining qualified HDHP coverage for the next 12 full months (13 months total).
The amount you can contribute is not determined by the date you establish your account unless you maintain qualified HDHP coverage for less than 12 full months, in which case the maximum is prorated by the number of full months of coverage.
According to IRS guidance (See Notice 2007- 22), state trust law determines when an HSA is established. Most state trust laws require three elements to establish a trust: 1) Intent; 2) a Corpus (for HSA purposes, a cash contribution); and 3) an ascertainable account beneficiary.
Intent: Completion of some type of form or application requiring an employee's signature (either manual or electronic) acknowledging the employee's desire to open an HSA documents the necessary intent.
Informally, the IRS has indicated that receipt of HSA documentation (i.e., the HSA signature card or acknowledgement of the terms and conditions of the HSA Deposit Account Agreement via an electronic signature) within a reasonable period of time after intent is demonstrated (e.g., within 60 days of demonstrating intent via the HDHP or Section 125 election) may allow for an Establishment Date retroactive to the effective date of the HDHP coverage. However, given that this IRS guidance is informal, the safest approach for the accountholder is to complete and return all of the HSA paperwork before the HDHP effective date.
Beneficiary: In the case of the HSA, the beneficiary of the account is the accountholder and therefore easy to ascertain (note they are not referring to the death beneficiary).
You have until the tax-filing date of the following year to deposit your maximum annual contribution for the year… for example, you have until April 15, 2010 for 2009 contributions.
Yes. You always have the option to choose when and when not to use your HSA dollars. You may pay for qualified medical expenses with after-tax dollars, allowing your HSA balance to grow tax-free.
Many HSA participants elect to pay smaller expenses with after-tax dollars, allowing their balances to grow for the future.
Your HSA funds can be used tax-free to pay for out-of-pocket qualified medical expenses, even if the expenses are not covered by your HDHP. This includes expenses incurred by your family.
There are hundreds of qualified medical expenses, including many you might not expect: over-the-counter medications; dental visits; orthodontics; glasses; long-term care insurance premiums; cost of COBRA coverage; medical insurance premiums while receiving federal or state unemployment compensation and post age-65 premiums for coverage other than Medigap or Medicare supplemental plans. In addition, HSA funds may be used to pay your Medicare parts A and B premiums and for employer-sponsored retiree plans.
All of these expenses may be paid for with your HSA funds, free from federal taxes or state tax (for most states). Refer to IRS Publication 502 for a more complete list of qualified medical expenses.
If you take a non-qualified distribution, you are subject to ordinary income tax and a 10 percent penalty tax. If you are age 65 or older, disabled, or your estate pays bills subsequent to your death, the 10 percent penalty may not apply.
The IRS requires that you confirm that your distributions are for qualified medical expenses. It is your responsibility to keep all documents (such as receipts) that show how you used your HSA, including any for non-qualified transactions, and self-report accordingly on your annual tax return.
If you take a non-qualified distribution, you are subject to ordinary income tax and a 10 percent penalty tax. If you are age 65 or older, disabled, or for the year in which you die, the 10 percent penalty may not apply.
Yes. Dental and vision care expenses are qualified expenses, as long as these are deductible for your income tax under the current IRS rules.
Yes. You always have the option to use your HSA funds however you wish. Distributions used exclusively to pay for qualified expenses continue to be free of federal taxes and state taxes (for most states). You may not, however, make contributions to your HSA because you are not covered by a qualified HDHP at this time. Should you enroll in a qualified HDHP at another time, you may then make contributions to your established HSA.
No.
Your HSA must be established before qualified medical expenses are incurred to receive distributions free from federal taxes and state tax (for most states).
The “Establishment Date” of an HSA is important because an accountholder can only receive tax-free distributions from his/her HSA to pay or be reimbursed for qualified medical expenses incurred after the date the HSA is considered “established” (See IRS Notice 2004-02; Q&A 26).
Just like a checking account, you can only access funds that are already in your account.
However, as additional funds are added to your account via your deposits (and/or deposits from your employer), you can reimburse yourself for qualified medical expenses paid for out of pocket, so long as those expenses occur after the date of the establishment of your HSA.
Yes, provided the services are qualified medical expenses, the distribution would be free from federal taxes and state tax, for most states.
You are responsible for the full amount charged until you have met your deductible; then co-payments and co-insurance apply. You may use your HSA funds to be reimbursed for these qualified medical expenses without federal taxes or state tax, for most states.
No, you are never required to withdraw funds from your account. Your HSA can continue to earn interest and grow until you decide to use the funds. If you never use your funds, your spouse may inherit your account and continue its tax-free status, or your beneficiaries will receive the funds as a taxable event as part of your estate.
There are no "use it or lose it" rules with regard to your HSA. Unused funds carry over from year to year. The money in your HSA is all yours. The less money you spend, the more money you have that may earn interest.
HSAs are a convenient and easy way to save for future medical expenses, as unused HSA dollars carry over from year to year.
You have full control over the assets in your HSA.
In cases of divorce, an HSA can be transferred between spouses without taxation. This is not considered a taxable distribution. All HSA rules regarding continued tax-free status, contributions and distributions apply.
Your HSA must be established before qualified medical expenses are incurred to receive tax-free distributions.
No. IRS rules consider these to be allowable distributions. These charges are paid tax-free.
While you do not need to continue your qualified HDHP coverage through COBRA, you must maintain qualified HDHP coverage to continue making contributions. You may pay your COBRA premiums with tax-free HSA dollars should you wish.
Your HSA is not subject to COBRA provisions. It is your account to take with you and to maintain as you choose.
Based on your employer's cafeteria plan rules, you may be allowed to increase, decrease, start or stop your HSA contributions at any time. Remember you are still restricted to your maximum annual contribution.
If you are no longer eligible to contribute because you are enrolled in Medicare benefits, or are no longer covered by a qualified HDHP, distributions used exclusively to pay for qualified medical expenses continue to be free from federal taxes and state tax (for most states) and excludable from your gross income.
Your HSA will no longer be considered an HSA if, upon your death, your estate or someone other than your spouse becomes the beneficiary of your account. Only if the account is transferred to your spouse will it remain an HSA.
Yes. You always have the option to use your HSA funds however you wish. Distributions used exclusively to pay for qualified medical expenses continue to be free from federal taxes and state tax, for most states. You may not, however, make contributions to your HSA because you are not covered by a qualified HDHP at this time. Should you enroll in a qualified HDHP at another time, you may then make contributions to your established HSA.
At age 65 and older, your funds continue to be available without federal taxes or state tax (for most states) for qualified medical expenses; for instance, you may use your HSA to pay certain insurance premiums, such as Medicare Parts A and B, Medicare HMO, or your share of retiree medical coverage offered by a former employer. Funds cannot be used tax-free to purchase Medigap or Medicare supplemental policies.
If you use your funds for qualified medical expenses, the distributions from your account remain tax-free. If you use the monies for non-qualified expenses, the distribution becomes taxable, but exempt from the 10 percent penalty.
With enrollment in Medicare, you are no longer eligible to contribute to your HSA. If you reach age 65 or become disabled, you may still contribute to your HSA if you have not enrolled in Medicare.
Building an account balance in preparation for expenses associated with disability or increasing medical usage in retirement is one of the great benefits of an HSA.
If you use your funds for qualified medical expenses, the distributions from your account remain tax-free. If you use the monies for non-qualified expenses, the distribution becomes taxable, but exempt for the 10 percent penalty.
You should choose a beneficiary when you set up your HSA. As circumstances in your life change, be sure to review your beneficiary designation. You can change your beneficiary by contacting your MVSB HSA specialist.
Spouse designated beneficiary. The account will be treated as your spouse's HSA after your death. The account will continue to be tax-free for qualified medical distributions. If your spouse is covered by a qualified HDHP, contributions to the account may also be made tax-free, up to maximum annual contribution limits.
Other than Spouse designated beneficiary.
Your estate is the beneficiary. If your estate is the beneficiary of your HSA, the value of your account is included on your final income tax return.
When you participate in a payroll deduction program through your employer, deductions can be taken from your payroll before calculating your taxable federal income, FICA (Social Security and Medicare) tax and for most states, taxable state income. By taking deductions pre-tax, you reduce the dollars on which you are taxed and, as a result, reduce your total tax bill.
“Above the line” means you will reduce your taxable income regardless of whether you itemize or use the standard deduction on your income tax form. If you contribute to your HSA with after-tax dollars, you may deduct the contribution amount, subject to the maximum annual contribution limits from your taxes at filing time.
For 2010, the combined maximum contributions to your HSA, including any made by your employer to your account, are $3,050 if you have individual coverage and $6,150 if you have family coverage. If you turn age 55 or older in 2010, you may add up to $1,000 more as a “catch up” contribution.
These amounts are valid as long as you enroll in qualified HDHP coverage before the first day of December, meaning you have held at least one full month of HDHP coverage, and so long as you continue to maintain qualified HDHP coverage for the next 12 months.
The IRS determines these maximum contribution limits annually.
Generally, there are no tax penalties for closing an HSA. However, there may be exceptions in certain circumstances so please consult with your accountant or tax advisor for more information.
The 10% penalty will be assessed for the year in which you take the distribution for non-qualified expenses. The penalty will be due and payable when you file your annual tax return.
Distributions from your HSA that are used exclusively to pay for qualified medical expenses for you, your spouse, or dependents are excludable from your gross income. Your HSA funds can be used for qualified expenses and will continue to be free from federal taxes and states taxes (for most states) even if you are not currently eligible to make contributions to your HSA.
If you take a non-qualified distribution, you are subject to ordinary income tax and a 10 percent penalty tax. If you are age 65 or older, disabled, or for the year in which you die, the 10 percent penalty may not apply.
If you are no longer eligible to contribute because you are enrolled in Medicare benefits, or are no longer covered by a qualified HDHP, distributions used exclusively to pay for qualified medical expenses continue to be free from federal taxes and state taxes (for most states) and excludable from your gross income.
Form1099-SA notifies the IRS of distributions made from your HSA during the tax year. Form 5498-SA notifies the IRS of contributions made to your HSA during the tax year.
Form1099SA notifies the IRS of distributions made from your HSA during the tax year. Form 5498-SA notifies the IRS of contributions made to your HSA during the tax year.
All the dollars in your HSA, including earnings generated on those dollars, are completely free of federal taxes and state taxes (for most states) while in your account.
The only time tax is ever owed on principal or interest from your HSA is if the money is distributed for non-qualified expenses prior to your reaching age 65, becoming disabled or die. Even if you use the funds for non-qualified expenses after you are 65 or disabled, you will only be subject to tax on the money you withdraw without the 10 percent penalty. You can always withdraw funds to pay for qualified medical expenses at any time without tax or penalty.
Contributions, investment earnings, and distributions for qualified medical expenses all are exempt from federal income tax, FICA (Social Security and Medicare) tax and state income taxes (for most states).
If a family member or anyone else makes a contribution to your HSA, the tax advantages apply to you and not the person making the contribution. You may deduct the contribution amount when filing your annual income taxes, in the same way you would if you had deposited the post-tax contribution on your own. All contributions to the account are combined and subject to maximum annual contribution limits.
This does not include any contributions made to your account by your employer. You do not take any deductions on contributions they make.
Your HSA must be established before qualified medical expenses are incurred to receive tax-free distributions.
How you report your distributions depends on whether or not you use the distribution for qualified medical expenses.
You must keep records (such as receipts) sufficient to show that:
Do not send these records with your tax return. Keep them with your tax records.
If you contribute more than your maximum annual contribution to your HSA, you may withdraw the excess without penalty up until April 15 of the following year. After that time, the funds are subject to ordinary income and an excise tax.
If there is clear and convincing evidence that this was a mistake, you may repay the mistaken distribution no later than April 15 following the first year that you become aware of the mistake. Under these circumstances the distribution is not included in gross income and the 10 percent penalty does not apply. You will need to keep records that demonstrate the actions you took.
You will also receive tax forms from your financial institution that show the distribution, as they will not be able to identify the funds returned as a result of the error. You should follow the instructions on the forms 1099SA, 5498SA, and 1040, or contact your tax advisor for assistance.
You have until the tax filing due date of the following tax year.
The IRS does not consider a domestic partner a spouse, regardless of state provisions. Thus, unless your domestic partner qualifies as your dependent under the federal tax laws, which is usually not the case, you cannot withdraw funds tax-free to pay for your domestic partner’s qualified health care expenses.
Yes. Pre-existing HSA funds or MSA monies may be transferred into an MVSB HSA and will continue their tax-free status.
No. You can only roll your HSA funds into another HSA. However, the government does allow a one-time distribution of funds from an IRA be contributed to an HSA. This amount, when combined with other HSA contributions for the year, may not exceed your annual maximum contribution.
Also, after making such a contribution, you must continue to participate in a qualifying high-deductible health plan for 13 consecutive months, beginning in the month of the IRA-to-HSA contribution. If you do not, you will be subject to income taxes and a 10 percent penalty tax on the transaction amount, except in the case of death or disability.
Such a transaction may be an option if you incur significant medical expenses and find yourself unable to afford to make the maximum HSA contribution.
Yes. The government does allow you to distribute funds from an IRA to an HSA by 2012. The amount moved, when combined with other HSA contributions for the year, may not exceed your annual maximum contribution.
Also, after making such a contribution, you must continue to participate in a qualifying high-deductible health plan for 13 consecutive months, beginning in the month of the IRA-to-HSA transfer. If you do not, you will be subject to income taxes and a 10 percent penalty tax on the transferred amount, except in the case of death or disability.
Such a transaction may be an option if you incur significant medical expenses and find yourself unable to afford to make the maximum HSA contribution.
Medical Savings Accounts (MSAs) were established before HSAs and are also known as Archer MSAs. They were made available in 1996 to self-employed individuals and employees of smaller businesses. If you have an MSA, you may transfer your funds to your HSA. You may choose to keep both an MSA and an HSA. If you contribute to your MSA, your HSA maximum annual contribution limit will be reduced by the amount of contributions to your MSA each year. At age 65, you may spend your MSA or HSA monies on whatever you choose, penalty free, but you will have to pay tax on non-qualified distributions.
Health Reimbursement Accounts or Health Reimbursement Arrangements (HRAs) are wholly employer-owned accounts and are generally administered by the employer on a "pay-as-you-go" basis. Bookkeeping entries or accounts are established and maintained by employers on behalf of each covered employee for the purpose of paying for unreimbursed medical expenses. Often employers will allow you to carry over any money remaining in your HRA at the end of the year. However, if you leave your employer, your account generally cannot be taken with you and you may not have future access to the remaining balance. With the Tax Relief and Health Care Act of 2006, employers may transfer HRA balances to open HSAs. Individuals may not execute a transfer on their own.
Flexible Spending Accounts (FSAs) are usually funded by you through voluntary pre-tax payroll deductions. No federal income tax, FICA (Social Security and Medicare) tax and in most states, state income tax deductions, are taken from these contributions. FSAs are established to pay for specific health care expenses that are not reimbursed by a group health plan such as eyeglasses, dental work, over-the-counter drugs, deductibles and co-payments. Your expenses and the expenses of your spouse, dependent children, and any other qualified tax dependent can be paid for using your flexible spending account.
Yes, provided that the HRA and/or FSA do not pay first-dollar for any benefit that is covered by the HDHP. In addition, there are specific rules for how these may be combined; review the basics here, and talk with your Benefits Department or check the IRS web site for full information.
Both HSAs and FSAs allow you to pay for qualified medical expenses with pre-tax dollars. One key difference, however, is that HSA balances can carry over from year to year, while FSA money left unspent at the end of the year is forfeited. If you have both an HSA and an FSA, you must pay certain expenses, such as those that apply to the HDHP deductible, out of your HSA before you may use your limited-purpose FSA.
According to IRS rules, you must first use your HSA funds to pay for covered medical expenses that apply to the deductible in your HDHP. Your FSA may be used to reimburse dental and vision expenses, over-the-counter medications and other expenses not covered by your HDHP and any co-payments required after you have met the deductible and before your HDHP pays 100% of covered expenses.
To be eligible for an HSA, expenses applied to the deductible must be paid by your HSA before you may use FSA dollars.
HSAs have significant advantages over MSAs, such as:
No. An HSA is just a funding mechanism to pay those qualified medical expenses not covered by your plan and has no impact on the providers you choose. You still follow your health plan's guidelines for receiving care.
With an HSA, you are free to use any doctor and any hospital you choose. However, significant cost savings are available to you when you use providers in your plan's provider network. Provider networks offer a wide variety of physicians and service providers at discounted rates.
You are responsible for the full amount charged until you have met your deductible. After meeting your deductible, only co-payments and co-insurance apply. You may use your HSA funds to be reimbursed for these qualified medical expenses tax-free.
Prescription medications are covered expenses under a qualified HDHP, but you will have to meet the deductible in order to be reimbursed by the insurance plan for these expenses. You may use tax-free HSA funds for reimbursement before the deductible is met.
Some medications, however, are considered “preventive” and as such may be covered under the preventive care provisions of your HDHP. You should check with your plan customer service representatives to determine if your medication is considered preventive.
You must have funds on deposit before paying for qualified medical expenses. If funds are not available in your HSA to pay a check or a debit card transaction, the check will be returned unpaid and the debit card withdrawal may be dishonored. In both cases, you will be charged applicable overdraft fees (see MVSB’s Schedule of Fees for details).
It’s important to understand that MVSB is not permitted to extend credit on an HSA account in order to pay items if you are overdrawn, as this is defined as a “prohibited transaction” by the Internal Revenue Service and could result in the disqualification of your HSA plan. If your HSA is disqualified, you may have to pay applicable taxes and a 10 percent penalty applied to all funds in the account as of the first day of the current tax year.
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