Health Savings Account

What is a Health Savings Account?

An HSA is money put in an account owned by an individual to pay for future medical expenses.  HSA’s were signed into law on December 8, 2003.   How does an HSA work? An HSA works like an IRA, except the money is used to pay for qualified health care costs.  Money deposited to the account is tax deductible and is used to pay for current and future qualified medical expenses.  Interest earned is tax deferred.  Unused balances roll-over from year to year.   Many Benefits for You! There can be substantial tax benefits to eligible individuals.  HSAs provide tax benefits related to paying qualified medical expenses, plus provide benefits similar to many tax-favored retirement plans.  

  • HSA contributions – by employer or employee – are tax deductible.
  • HSA earnings are tax-deferred.
  • If used for qualified medical expenses, HSA distributions are never taxed.
  • Unused HSA assets may be used for retirement, however, distributions before the HSA account holder reaches age 65 will be subject to a 20% penalty, and if not used for medical purposes, they will be subject to income tax.  See your tax advisor.
  • Upon death, assets become the property of a named death beneficiary, or the HSA account beneficiary’s estate.  A spouse may treat the assets as his or her own HSA, while non-spouse death beneficiaries must treat such assets as ordinary, taxable income.

Expenses that Qualify for Tax-free Distributions

  • Actual medical expenses, including doctor visits, prescriptions, eye glasses, dental care and transportation to get medical care.
  • COBRA continuation coverage after leaving employment with a company that offers health insurance coverage.
  • Qualified long-term care insurance.
  • Any health plan coverage while receiving federal or state unemployment benefits.
  • Certain continuation-of-benefit healthcare coverage and health insurance after age 65.

Nonqualified uses of HSA assets are subject to taxation, and a 20% penalty unless the HSA account beneficiary is age 65 or older, dies, or is disabled.   Who can qualify? Contributions can be made to your HSA during any month that you:

  • Are covered under a High Deductible Health Plan (HDHP) on the first day of such month;
  • Are not also covered by any other health plan that is not an HDHP (with limited exceptions);
  • Are not entitled to benefits under Medicare (generally not yet age 65);
  • Are not able to be claimed as a dependent on another person’s tax return.
HDHP Qualifications  
Self OnlyFamily
2017 Annual Insurance Minimum Deductible$1,300$2,600
2017 Maximum Out-Of-Pocket Expenses (including deductible and co-pays)$6,550$13,100

An HDHP is an insurance policy that meets certain dollar limits. HSA Contributions   You can make a contribution to your HSA each year that you are eligible.  You can contribute up to the amount of your HDHP deductible but no more than:   $3,400*  —  Self-only coverage $6,750*  —  Family coverage   *2017 amounts; adjusted annually for inflation.

Age 55+ Catch-up Contribution Limits 
Taxable YearMaximum Catch-up
2009 and after$1,000

  If you are age 55 before the close of a taxable year, you may also contribute an additional amount known as a “catch-up” contribution.   Reporting Required Employer contributions to an HSA must be reported on the employee’s W-2.   For more information or to set up an HSA, stop in or give us a call.    

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