IRS Rules for Health Saving Accounts (HSA)
The following guidelines are established by the IRS for Health Savings Accounts (HSA).
Basic Rules of an HSA
Ownership: The HSA account belongs to you (not your employer) and is portable if you change jobs.
Changes: You can change or cancel your contribution amount at your discretion.
Roll-forward: All funds remain in the account from year to year. There are no “use it or lose it” rules for HSAs.
Eligibility: If you meet the following criteria, you may be eligible to deposit money in an HSA:
- You are enrolled in a qualified high deductible health plan (HDHP)
- You cannot be claimed as anyone’s dependent.
- You are not covered by any non-qualified plans.
These eligibility rules determine if you can contribute to your HSA account, not if you can spend your HSA money.
A non-qualified plan is any medical plan that does not meet HDHP requirements. Coverage under any other medical plan (primary or secondary/dependant coverage) will make you ineligible for an HSA plan.
Three important details:
- Always check with your insurance provider to see if your plan is HSA compatible.
- Spouse coverage can affect your eligibility. If your spouse is enrolled in any medical plan, verify that you are not covered on their plan(s). Some plans cover spouses by default and could make you ineligible to contribute to an HSA plan.
- There are many commonly overlooked non-qualified plans. A few examples include:
- VA Benefits*
- Flexible Spending Accounts (FSA)
- Health Reimbursement Arrangement (HRA)
- Medical Reimbursement Plan (MRP)
*If you haven’t received Veteran’s benefits in the last three months, you can contribute to an HSA plan.
For 2016, you can contribute the following amounts:
- $3,350 if you have self-only coverage
- $6,750 if you have family coverage
For those 55 and older, an additional $1,000 “catch-up” contribution is allowed.
If you join an HDHP mid-year, there are special rules about how much you can contribute. To avoid possible complications, we recommend pro-rating your HSA contribution to not exceed the following monthly amounts:
- $279 (1/12 of $3,350) if you have self-only coverage
- $562.50 (1/12 of $6,750) if you have family coverage
So if you join an HDHP on October 1st, your HSA contributions should not exceed:
- $837 if you have self-only coverage
- $1,687.50 if you have family coverage
You are allowed to contribute more than the pro-rated amounts, but there can be negative tax consequences if your HSA eligibility changes.
Eligible medical expenses are defined by the IRS in Section 213(d) and are listed in IRS P502. Most medical, dental, vision and over-the-counter expenses used to treat a medical condition are eligible. These expenses can be for you, your spouse or your dependents even if they are not covered on your HDHP.
A few examples are:
- Office Visits
- Dental Cleanings
All ineligible HSA distributions are taxable as income and subject to additional tax penalties so it is very important to know what is eligible.
- Health insurance premiums (other than COBRA and select Medicare plans)
- Non-medical expenses
- Cosmetic procedures (teeth whitening, cosmetic surgery, etc …)
- Medicare supplement insurance premiums
- Expenses reimbursed from any other source