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Health Savings Account (HSA)
What is an HSA?
An HSA is a tax-exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of the account beneficiary who, for the months which contributions are made to an HSA, is covered under a high-deductible health plan.
HSA Eligibility
An “eligible individual” can establish an HSA. An “eligible individual” means, with respect to any month, any individual who:
• is covered under a high-deductible health plan (HDHP) on the first day of such month.
• is not also covered by any other health plan that is not an HDHP (with certain exceptions for plans providing certain limited types of coverage)
• is not entitled to benefits of Medicare
• is not claimed as a dependent on another person's tax return.
What is a high-deductible health plan (HDHP)?
A HDHP has an annual deductible of at least $1,000 and annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) not exceeding $5,000. For family coverage, an HDHP has an annual deductible of at least $2,000 and annual out-of-pocket expenses not exceeding $10,000.
How much may be contributed to an HSA in a calendar year?
The maximum monthly contribution is 1/12 of the annual deductible under the HDHP with a minimum of $1,000 but not more than $2,600. For family the minimum is $2,000 with a maximum of $5,150.
Tax Treatment of an HSA
Contributions made by an individual to an HSA are deductible by that individual up to the amount allowed, and to be deducted from their adjusted gross income. This creates a tax exempt status. If the money from the HSA is used for qualified medical expenses they remain tax-free distributions. If the distribution is used for something other than a qualified medical expense it is included in that year's gross income subject to an ADDITIONAL 10% tax.
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