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Reducing Your Healthcare Costs and Taxes
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An Introduction to HSAs
HSAs (Health Savings Accounts) are tax-exempt accounts for accumulating savings to pay for medical expenses. They were created by Congress in order to combat rising medical costs. HSA contributions are tax-deferred and withdrawals are tax-free providing that they are used for eligible medical expenses. Designed to be used in conjunction with affordable high deductible health plans, your HSA can cover small and routine medical expenses until your deductible is met and insurance benefits "kick in".
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Frequently Asked Questions
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Q:
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How long have HSAs been around?
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A:
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The permanent legislation allowing HSAs become effective on January 1, 2004.
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Q:
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How can HSAs reduce taxes?
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A:
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Both employer and employee HSA contributions are tax deductible.
The earnings on your HSA are tax-deferred.
Your HSA assets that are used for qualified medical expenses will never be taxed.
Your unused HSA assets can be used for retirement penalty free after age 65.
Upon death, your HSA assets become the property of a named death beneficiary or the HSA account beneficiary's estate.
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Q:
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What medical expenses qualify for use of HSA funds?
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A:
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Visits to the doctor, hospitalization, transportation to medical care, prescriptions, vision and dental care are all considered qualified expenses. Long-term care insurance, certain continuation-of-benefit healthcare coverage, and certain health insurance after age 65 may also be considered qualified expenses. To find a complete list, see IRS Publication 502.
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Q:
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Am I eligible?
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A:
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You are eligible if you are covered by a high deductible health plan, are not covered by any additional health plans, and are not enrolled in Medicare. You also can't be listed as a dependant on someone else's tax return.
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Q:
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Can contributions to HSAs be made by employers?
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A:
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Yes they can. However when employers contribute on behalf of any employee, they must contribute a similar amount or percentage on behalf of all their employees who have comparable health insurance coverage. There are exceptions for part-time and non-highly compensated employees. Employers can also offer HSAs through their cafeteria plans.
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Q:
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If my employer is contributing to my HSA can I contribute also?
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A:
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You can, but your employer's contributions will offset the total you can contribute.
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Q:
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If I'm self-employed am I still eligible for an HSA?
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A:
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Yes
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Q:
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Is there a minimum insurance deductible to qualify?
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A:
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Yes, the insurance deductible can be no less than $1,100 for an individual or $2,200 for a family.
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Q:
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How much can I contribute to an HSA?
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A:
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Individuals can contribute up to $2,900 per year. Families can contribute up to $5,800 per year.
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Q:
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I read that there is a "catch-up" contribution provision for older workers, what are the specifics?
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A:
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If you are 55 or older, you may contribute more to the account per year. For 2007 an additional $800 contribution was allowed. In 2008 the maximum additional contribution will be $900. Starting in 2009, the maximum additional contribution will be $1,000 per year.
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Q:
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What happens to HSA contributions that are not used that year?
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A:
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Your HSA contributions roll over from year to year and can be used for medical reasons for life. After you turn 65 (or in the event of your death or disability), funds can be withdrawn for non-medical reasons. It is important to remember however, that withdrawals for non-medical reasons are taxed as ordinary income, similar to an IRA.
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Q:
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What and how much is the annual Maximum Out-of-Pocket?
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A:
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The "Maximum Out-of-Pocket" includes your deductible and any expenses incurred once the deductible is met. The annual "Maximum Out-of-Pocket" is currently $5,600 for individuals and $11,200 for families.
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Q:
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Does my HSA change if I become unemployed or I'm laid off temporarily?
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A:
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You can use HSA funds to pay COBRA or other medical insurance premiums during periods of unemployment or temporary layoffs.
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Q:
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What happens to my HSA if I change jobs?
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A:
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Even when you change jobs you retain the contributions that have been made to your HSA.
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Q:
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Can I roll over my existing MSA (Medical Savings Account) assets into an HSA?
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A:
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MSA account holders can roll over their MSA assets to take advantage of the more favorable HSA rules.
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Q:
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Can I roll over my HSA assets into another HSA or MSA?
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A:
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Yes, your HSA savings can be rolled over into another HSA or MSA once every 12 months.
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Q:
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Do I need to report HSA account activity?
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A:
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All HSA contributions made on behalf of an employee by an employer must be reported by the employer to the IRS. Your tax return must report your employer's HSA contribution and your own. Banks and other financial organizations holding HSAs must also provide reports to the IRS.
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Health Savings Account Structure and Fees
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| Opening Fee |
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$25 |
| Opening Fee |
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$25 |
| Minimum Balance |
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$0 |
| Monthly Maintenance Fee (if account falls below $2500) |
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$2 |
| Debit Card Replacement |
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$5 |
| Overdraft (per item) |
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$30 |
| Daily Overdraft Fee |
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$5 per day after 3 days overdrawn |
| Stop Payment Fee |
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$30 |
| NSF (per item) |
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$30 |
| Statement Printout |
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$2 |
| Return Item Fee (per item) |
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$10 |
| Closure Fee (if closed within 90 days of account opening) |
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$10 |
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