Health Savings Account (HSA)
A Health Savings Account (HSA) is an individually owned tax-advantaged account that allows the accountholder to pay for qualified health care expenses if covered under a High Deductible Health Plan (HDHP). Contributions to a HSA are tax-free, interest can be earned on the account which is tax-free, and qualified distributions are tax-free. Unused funds and interest carry forward, without limit, from year to year. The accountholder owns the account and can keep the account even when changing jobs or stopping work.
An eligible individual includes anyone who:
- Is covered by a HDHP
- Is not covered by any other health plan* that is not a HDHP
- Is not currently enrolled in Medicare or TRICARE
- Has not received medical benefits through the VA during the most recent three months
- May not be claimed as a dependent on another person’s tax return
*If an individual enrolls in both a HSA and Flexible Spending Account (FSA) or Health Reimbursement Arrangement (HRA), he/she cannot make HSA contributions if the FSA/HRA is a general purpose account. However, the individual may contribute to the HSA if the FSA/HRA is a limited-purpose arrangement covering dental and vision only.
HSA funds can be saved for future expenses, or spent on current expenses to pay for qualified medical, dental, vision, prescription drug expenses, etc. as defined in IRS Publication 502. Funds can also be used for non-health care expenses, however, are subject to income tax and if under age 65 are subject to a 20% penalty.
The IRS established contribution limits for individuals and families and these amounts are indexed annually. The IRS also includes special rules that allow individual accountholders age 55 to 65 to make catch-up contributions. Anyone can make contributions to a HSA of an eligible individual. Individuals, family member or employers may contribute to a HSA. Individuals may contribute to the HSA via pretax payroll contribution (if allowed by the employer), or otherwise make a deposit to the account online, or by cash or check. Excess contributions, or amounts that exceed the limits, can be assessed an excise tax of 6% if not withdrawn in a timely manner.
Individual accountholders must file IRS Form 8889 with his/her tax return annually to report contributions and distributions from the account.
The individual accountholder is responsible for monitoring his/her account, ensuring that distributions are for qualified expenses and that contributions do not exceed limits set by the IRS. Individuals must keep records and documentation of all health care expenses for which distributions are taken.
Additional information can be found under the Useful Links Tab above.