Health Savings Accounts FAQs
What are the benefits of a Health Savings Account (HSA)?
Health Savings Accounts can provide significant tax benefits to eligible individuals. Not only can HSAs provide tax benefits related to paying qualified medical expenses, they may also provide benefits similar to many tax-favored retirement plans, including:
- HSA contributions — by employer or employee — are excluded from income.
- HSA earnings are tax-deferred.
- If used for qualified medical expenses, HSA assets are never taxed.
Unused HSA assets may be used for retirement; however, effective 1-1-2011 they will be subject to a 20 percent penalty until the HSA account beneficiary turns age 65. If not used for medical expenses, they will be subject to income taxes.
Upon death, HSA assets become property of a named death beneficiary, or of 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.
Your employer may designate a group set-up at ANB for all employee HSAs, helping streamline the contribution process for both you and your HR department.
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What are qualified medical expenses?
For HSA assets to retain their tax-free status, they may only be withdrawn and used for certain expenses, including:
- Actual medical expenses, such as doctor visits, prescriptions, and transportation to get medical and dental care
- Long-term care insurance
- Health care coverage when unemployed
- Certain continuation-of-benefit health care coverage
- Certain health insurance after age 65
- Non-qualified uses of HSA assets are subject to taxation and a 20 percent penalty unless the HSA account beneficiary is age 65 or older, dies, or is disabled.
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Who is eligible to participate?
You are an eligible individual for any month if you:
- Are covered under a high-deductible health plan
- Are not also covered by any other health plan that is not a high-deductible health plan (with limited exceptions)
- Are not enrolled for benefits under Medicare (generally not yet age 65)
- Are not eligible to be claimed as a dependent on another person's tax return
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What is considered a high-deductible health plan?
A high-deductible health plan (or HDHP) is an insurance policy that meets certain dollar limits as shown in the table below.
| 2012 HDHP Limits* | ||
|---|---|---|
| Self Only | Family | |
| Annual Deductible | $1,200 or more | $2,400 or more |
| Annual Deductible plus out-of-pocket expenses cannot exceed: | $6,050 or less | $12,100 or less |
*HDHP and contribution limitations are revised each year to reflect cost-of-living increases.
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Can self-employed individuals have an HSA?
Sole proprietors and others who are self-employed can have a Health Savings Account. In fact, they're often ideal candidates for an HSA. In such situations, the business owner is both employer and employee.
HSAs are often advantageous for the self-employed because:
- High-deductible health insurance plans generally have modest premium costs, and may be an effective
cost-containment mechanism for the employer. - The employer is protected against potentially catastrophic health care expenses.
- The HSA may serve the dual purpose of providing for both medical and retirement expenses.
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What are the HSA contribution rules?
The total amount you or your employer may contribute to an HSA for any taxable year is dependent upon whether you have individual or family coverage under a high-deductible health plan as shown in the table below.
| 2012 HSA Contribution Limits* | ||
|---|---|---|
| Self Only | Family | |
| Annual Contribution Limit | $3,100 | $6,250 |
*HDHP and contribution limitations are revised each year to reflect cost-of-living increases.
In addition to the standard HSA contribution limits shown in the previous table, if you have reached age 55 before the close of a taxable year, you may also contribute an additional amount known as a "catch-up" contribution. The catch-up contribution limit is scheduled to increase through 2011 as shown in the table below.
| 2012 HSA Contribution Limits | |
|---|---|
| Taxable Year | Maximum Catch-up |
| 2005 2006 2007 2008 2009 2010 2011 2012 |
$600 $700 $800 $900 $1,000 $1,000 $1,000 $1,000 |
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Do HSAs require reporting?
HSAs require the following government reporting:
- HSA holders must report all contributions and distributions on their individual income tax returns.
- An employer contribution is reported on a business tax return, as well as on the W-2 form of any employee receiving an employer contribution.
- All contributions and distributions from an HSA account are also reported by the custodian or trustee where the HSA is held.
Content — ©2011 BISYS Retirement Services
What are the service fees for an HSA?
There is a $5 one-time set-up fee and a $3 monthly service fee.
