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Health Savings Account - FAQ  
 

FREQUENTLY ASKED QUESTIONS -

Section I - HSAs: Definition and Qualifications.

(1) What is a Health Savings Account (HSA)?

(2) Who is eligible to establish an HSA?

(3) What is a High-Deductible Health Plan (HDHP)

Section II - How to establish an HSA.

(4) How does an eligible individual establish an HSA?

(5) Who is a qualified HSA trustee or custodian?

(6) Does the HSA have to be opened at the same institution that provides the HDHP?

Section III - Contributions to HSAs.

(7) Who may contribute to an HSA?

(8) How much may be contributed to an HSA in the calendar year 2009?

(9) What are the "catch-up contributions" for individuals age 55 or older?

(10) If one or both spouses have family coverage, how is the contribution limit computed?

(11) In what form must contributions be made to an HSA?

(12) What is the tax treatment of an eligible individual's HSA contributions?

(13) What is the tax treatment of contributions made by a family member on behalf of an eligible individual?

(14) What is the tax treatment of employer contributions to an employee's HSA?

(15) When may HSA contributions be made? Is there a deadline for contributions to an HSA for a taxable year?

(16) What happens when HSA contributions exceed the maximum amount that may be deducted or excluded from gross income in a taxable year?

(17) Are rollover contributions to HSAs permitted?

Section IV - Distributions from HSAs.

(18) When is an individual permitted to receive distributions from an HSA?

(19) How are distributions from an HSA taxed?

(20) What are the "qualified medical expenses" that are eligible for tax-free distributions?

(21) What are the income tax consequences after the HSA account beneficiary's death?

Section V - Other Matters.

(22) Can an HSA be offered under a cafeteria plan?

(23) Are HSAs subject to COBRA continuation coverage under section 4980B?

(24) May eligible individuals use debit, credit or stored-value cards to receive distributions from an HSA for qualified medical expenses?

(1) What is a Health Savings Account?

A Health Savings Account (HSA) is a tax-deferred investment account used in conjunction with a qualified high deductible health plan. It is an arrangement that allows earnings and deductible contributions to grow tax-deferred.

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(2) Who is eligible to establish an HSA?

You are an eligible individual and may make or receive an HSA regular contribution if, with respect to any month, you:

  • Are covered under a high-deductible health plan (HDHP) on the first day of such month;
  • Are not covered by any other type of health plan that is not an HDHP (with certain exceptions for plans providing preventative care and limited types of permitted insurance and permitted coverage);
  • Are not enrolled in Medicare Part A or Part B; and
  • May not be claimed as a dependent on another person's tax return.

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(3) What is a High-Deductible Health Plan (HDHP)?

Generally, an HDHP is a health plan that satisfies certain requirements with respect to deductibles and out-of-pocket expenses.

IRS Requirements for 2010
 
Single Plan
Family Plan
Minimum Deductible
$1,200
$2,400
Maximum Out-of-Pocket
$5,950
$11,900
 
IRS Requirements for 2009
 
Minimum Deductible
$1,150
$2,300
Maximum Out-of-Pocket
$5,800
$11,600

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(4) How does an eligible individual establish an HSA?

Beginning January 1, 2004, any eligible individual (as described in Question #2) can establish an HSA with a qualified HSA trustee or custodian, in much the same way that individuals establish IRAs or Archer MSAs with qualified IRA or Archer MSA trustees or custodians. No permission or authorization from the Internal Revenue Service (IRS) is necessary to establish an HSA. An eligible individual who is an employee may establish an HSA with or without involvement of the employer.

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(5) Who is a qualified HSA trustee or custodian?

A trustee or custodian of an HSA must be a bank, an insurance company, a person previously approved by the IRS to be a custodian of an individual retirement account (IRA) or Archer MSA, or any other person approved by the IRS.

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(6) Does the HSA have to be opened at the same institution that provides the HDHP?

No. The HSA can be established through a qualified trustee or custodian who is different from the HDHP provider. Where a trustee or custodian does not sponsor the HDHP, the trustee or custodian may require proof or certification that the account beneficiary is an eligible individual, including that the individual is covered by a health plan that meets all of the requirements of an HDHP.

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(7) Who may contribute to an HSA?

Any eligible individual may contribute to an HSA. For an HSA established by an employee, the employee, the employee's employer or both may contribute to the HSA of the employee in a given year. For an HSA established by a self-employed (or unemployed) individual, the individual may contribute to the HSA. Family members may also make contributions to an HSA on behalf of another family member as long as that other family member is an eligible individual.

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(8) How much may be contributed to an HSA in the calendar year 2010?

The maximum annual contribution to an HSA is the sum of the limits determined separately for each month, based on status, eligibility and health plan coverage as of the first day of the month. For calendar year 2010, the maximum monthly contribution for eligible individuals with self-only coverage under an HDHP is 1/12 of the lesser of 100% of the annual deductible under the HDHP (minimum of $1,200) but not more than $5,950. For eligible individuals with family coverage under an HDHP, the maximum monthly contribution is 1/12 of the lesser of 100% of the annual deductible under the HDHP (minimum of $2,400) but not more than $11,900.

For calendar year 2009, the maximum monthly contribution for eligible individuals with self-only coverage under an HDHP is 1/12 of the lesser of 100% of the annual deductible under the HDHP (minimum of $1,150) but not more than $5,800. For eligible individuals with family coverage under an HDHP, the maximum monthly contribution is 1/12 of the lesser of 100% of the annual deductible under the HDHP (minimum of $2,300) but not more than $11,600.

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(9) What are the "catch-up contributions" for individuals age 55 or older?

Catch-up contributions are HSA contributions made in addition to any regular HSA contributions. You are eligible to make catch-up contributions if you meet the eligibility requirements for regular contributions and are age 55 or older by the end of your taxable year and not enrolled in Medicare. As with the annual contribution limit, the catch-up contribution is computed on a monthly basis.

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(10) If one or both spouses have family coverage, how is the contribution limit computed?
You and your spouse are treated as having family coverage if either of you has family coverage. If you and your spouse have family coverage under different HDHPs, then each of you is treated as covered under the HDHP with the lowest deductible. The contribution limit for each of you in the lowest deductible amount, divided equally between you and your spouse, unless each of you agree on a different division. The family coverage limit is reduced further by any contribution to an Archer MSA. However, each of you may make the catch-up contributions without exceeding the family coverage limit.

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(11) In what form must contributions be made to an HSA?

Regular or annual HSA contributions must be in cash, which may include a check, money order, or wire transfer.

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(12) What is the tax treatment of an eligible individual's HSA contributions?

Contributions made by you to an HSA, which do not exceed the maximum annual contribution amount, are deductible by you when determining your adjusted gross income. You are not required to itemize deductions in order to take this deduction. However, you cannot also deduct the contributions as medical expenses under section 213.

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(13) What is the tax treatment of contributions made by a family member on behalf of an eligible individual?

Contributions made by a family members or any other person (including nonindividuals) on your behalf are also deductible by you.

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(14) What is the tax treatment of employer contributions to an employee's HSA?

Employer contributions are treated as employer-provided coverage for medical expenses under an accident or health plan and are excludable from your gross income. The employer contributions are not subject to withholding from wages for income tax or subject to the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, or the Railroad Retirement Tax Act. Contributions to your HSA through a cafeteria plan are treated as employer contributions. You cannot deduct employer contributions on your federal income tax return as HSA contributions or as medical expense deductions under section 213.

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(15) When may HSA contributions be made? Is there a deadline for contributions to an HSA for a taxable year?

You may make regular and catch-up HSA contributions any time for a taxable year up to and including your federal income tax return due date, excluding extensions, for that taxable year. The due date for most taxpayers is April 15.

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(16) What happens when HSA contributions exceed the maximum amount that may be deducted or excluded from gross income in a taxable year?

You may withdraw all or a portion of your excess contribution and attributable earnings by your federal income tax return due date, including extensions, for the taxable year for which the contribution was made. The excess contribution amount distributed will not be taxable, but the attributable earnings on the contribution will be taxable in the year in which the distribution is received.

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(17) Are rollover contributions to HSAs permitted?

Rollover contributions from Archer MSAs and other HSAs into an HSA are permitted. Rollover contributions need not be in cash. Rollovers are not subject to the annual contribution limits. Rollovers from an IRA, from a health reimbursement arrangement (HRA), or from a health flexible spending arrangement (FSA) to an HSA are not permitted.

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(18) When is an individual permitted to receive distributions from an HSA?

An individual is permitted to receive distributions from an HSA at any time.

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(19) How are distributions from an HSA taxed?

Distributions from an HSA used exclusively to pay for qualified medical expenses of the account beneficiary, his or her spouse, or dependents are excludable from gross income. In general, amounts in an HSA can be used for qualified medical expenses and will be excludable from gross income even if the individual is not currently eligible for contributions to the HSA. However, any amount of the distribution not used exclusively to pay for qualified medical expenses of the account beneficiary, spouse or dependents is includable in gross income of the account beneficiary and is subject to an additional 10% tax on the amount includable, except in the case of distributions made after the account beneficiary's death, disability, or attaining age 65.

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(20) What are the "qualified medical expenses" that are eligible for tax-free distributions?

The term "qualified medical expenses" are expenses paid by the account beneficiary, his or her spouse or dependents for medical care as defined in section 213(d) (including nonprescription drugs as described in Rev. Rul. 2003-102, 2003-38 I.R.B. 559), but only to the extent the expenses are not covered by insurance or otherwise. The qualified medical expenses must be incurred only after the HSA has been established.

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(21) What are the income tax consequences after the HSA account beneficiary's death?

Upon death, any balance remaining in your HSA becomes the property of the beneficiaries named in the HSA agreement.

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(22) Can an HSA be offered under a cafeteria plan?

Yes. Both an HSA and an HDHP may be offered as options under a cafeteria plan. Thus, an employee may elect to have amounts contributed as employer contributions to an HSA and an HDHP on a salary-reduction basis.

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(23) Are HSAs subject to COBRA continuation coverage under section 4980B?

No. Like Archer MSAs, HSAs are not subject to COBRA continuation coverage.

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(24) May eligible individuals use debit, credit or stored-value cards to receive distributions from an HSA for qualified medical expenses?

Yes.

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