Health Savings Accounts: What You Need to Know
What is a Health Savings Account, or HSA? An HSA is a special bank account that is set up to help pay out of pocket medical expenses. As many employers are gearing up for open enrollment, here are a few things you will need to know about these plans.
HSA’s have specific eligibility requirements. In order for someone to be able to contribute to an HSA, they must meet the eligibility requirements including:
- Be covered by a qualifying High Deductible Health Plan (HDHP)
- Not be covered by other disqualifying coverage, such as a full purpose Flexible Spending Account
- Not be enrolled in Medicare
- Not be considered someone’s tax dependent
Once someone has determined they are eligible to contribute to an HSA, they will need to decide how much they want to contribute. The annual maximum is established by the IRS and is based on the level of insurance coverage. In 2016, the maximum contribution for someone with individual coverage is $3,350. The maximum contribution for family coverage is $6,750. Contributions can be made a variety of ways, and do not have to be made pre-tax through payroll deductions. The account holder, their employer, and family and friends can all contribute to someone’s HSA. If contributions are made on an after-tax basis, the account holder can claim an above the line deduction at tax time.
Eligible expenses that can be reimbursed from an HSA include out of pocket medical, dental and vision expenses. In addition to these, an HSA can also reimburse certain types of insurance premiums such as COBRA premiums and medical insurance premiums while someone is receiving unemployment.
HSAs also have the capability to earn interest and HSA funds can be invested for tax free growth. Someone who does not have a lot of medical expenses currently can set money aside in their HSA for future medical expenses. Their HSA balance is not lost at the end of the year if not used and is also not lost if an employee leaves their job. The funds remain in the account to be available later on.
While there are many details that need to be considered when looking at an HSA, these are just some of the highlights. Employers considering offering an HSA with their HDHP will want to make sure to have the resources available to answer employee’s questions about these plans. Employees will want to make sure they are truly eligible to contribute to an HSA to avoid any additional taxes and penalties at tax time. For more information about HSAs, please visit our website at www.myCafeteriaPlan.com.
BusinessPlans, Inc. – myCafeteriaPlan does not intend to provide legal or tax advice and information contained in this article should not be interpreted as such. Regulations governing pretax plans are often open to interpretation and should be reviewed with your legal or tax advisor before making any decisions regarding your plan.