What is a Health Savings Account?
A Health Savings Account (HSA) is a tax-exempt medical savings account available for those enrolled in a High Deductible Health Plan (HDHP). HSA’s are established exclusively for paying or reimbursing qualified medical expenses for you, your spouse, and dependents. Learn more:
You are eligible for a regular HSA contribution if you meet all of the following conditions:
- Are covered under a (HDHP) high deductible health plan on the first day of any such month.
- Are not also covered by any other health insurance plan that is not an HDHP (with certain exceptions for plans providing preventive care and limited types of permitted insurance and permitted coverage.)
- Are not enrolled in Medicare.
- Cannot be claimed as a dependent on another individuals tax return.
An HDHP is a plan with a minimum annual deductible for 2017 of $1,300 for self-only coverage or $2,600 for family coverage. For 2018, the minimum annual deductible is $1,350 for self-only coverage and $2,700 for family coverage. The HDHP minimum annual deductibles are subject to cost-of-living adjustments.
Yes. For the HSA purposes and the 2017 tax year, the HDHP must limit out-of-pocket expenses to no more than $6,550 for self-only coverage and $13,100 for family coverage. For the 2018 tax year, the HDHP must limit out-of-pocket expenses to no more than $6,650 for self-only coverage and $13,300 for the family coverage. The out-of-pocket expenses are subject to cost-of-living adjustments.
If you are eligible, you can establish an HSA in much the same way you would establish an IRA---with a qualified trustee or custodian. Each year, you are responsible for determining your allowable annual HSA contribution and whether you have qualified medical expenses eligible for reimbursement with nontaxable HSA distributions.
If you meet the eligibility requirements for an HSA, you, your employer, your family members, and any other person may contribute to your HSA. This is true whether you are self-employed or unemployed.
For the 2017 tax year, those with self-only coverage can contribute up to $3,400 to their HSA. If covered under a family plan, the contribution limit is $6,750. For the 2018 tax year, those with self-only coverage can contribute up to $3,450 to their HSA. If covered under a family plan, the contribution limit is $6,900. Additionally, a catch-up contribution is available for eligible individuals who are age 55 or older by the end of their taxable year and have not enrolled in Medicare. Contribution limits are subject to cost-of-living adjustments.
Contributions to an HSA are fully tax deductible; the earnings grow tax deferred and distributions pay or reimburse qualified medical expenses are tax free. You may deduct contributions made by anyone other than your employer as long as they do not exceed the maximum annual contribution amount. Employer contributions are not wages for federal income tax purposes.
The deadline for regular and catch-up HSA contributions is the date that your federal income taxes are due, excluding extensions, for that taxable year. The due date for most taxpayers is April 15th.
The qualified medical expenses must be incurred after the HSA has been established. HSA distributions used exclusively to pay for or reimburse qualified medical expenses incurred by you, your spouse, or your dependents are not included in your annual gross income. Any other distributions are included in income unless rolled over. Distributions not used to pay for or reimburse qualified medical expenses or not rolled over are subject to an additional 20 percent tax unless made after your death, your disability, or your attainment of age 65. HSA custodians/trustees are not required to determine whether HSA distributions are used for qualified medical expenses.
If you mistakenly distribute assets from your HSA, you may be able to return the assets to the same HSA. However, the law does not require a financial organization to accept the return of a mistaken distribution, you will need to be prepared to provide the IRS with clear and convincing evidence that the HSA distribution was the result of a mistake of the fact due to reasonable cause. A mistaken distribution can be returned no later than April 15 following the first year you knew or should have known the distribution was a mistake.
Each year, your HSA custodian/trustee reports to the IRS on IRS Form 5498-SA the contributions made to your HSA and on IRS Form 1099-SA any HSA distributions you take. In addition, you file IRS Form 8889, Health Savings Accounts (HSAs), as part of your federal income tax return to show your HSA contribution and distribution activity.
A financial organization will generally treat a distribution made by check or debit card as a normal distribution. Consult Choice Bank to find out its specific policy regarding distributions made by check or debit card.
If your spouse is the beneficiary of your HSA, the HSA becomes his/her HSA. If your beneficiary is not your spouse, the HSA ceases to be an HSA as of the date of your death. If your beneficiary is your estate, the fair market value of the HSA as of the date of your death is included as income on your final income tax return. For other beneficiaries, the fair market value of your HSA is included as income on the recipient’s income tax return for the year of your death.
Choice Bank offers convenient access to your HSA funds with an interest-bearing checking account. There is no monthly minimum balance required, and simply a $1.00 per month maintenance fee. A debit card is included with the HSA at no extra cost. We do ask that the account be opened with a $100 initial deposit.