Health Saving Account
Information Website: http://www.msuextension.org/
Federal Information Website: http://www.treasury.gov/resource-center/faqs/taxes/Pages/Health-Savings-Accounts.aspx
Federal Question Phone Number: 1-800-829-1040 for individuals or 1-800-829-4933 for businesses
Purpose: HSAs are special savings accounts that were established by federal law to allow eligible individuals to make deposits that can be used to pay for future qualifying medical expenses. Deposits to HSAs reduce an individual’s state and federal taxes. Any funds remaining in the HSA at the end of the year may be used to pay for qualifying medical expenses in future years for the individual, his or her spouse or dependents. HSAs can be established at banks, credit unions, insurance companies, and other financial institutions (such as a mutual fund company) that have decided to offer HSAs. Because an HSA is a designated account, an individual cannot use an established savings account as his or her HSA. The types of investments (CDs, stocks, bonds, mutual funds and so on) that are available to account holders are determined by the financial providers that offer HSAs. For calendar year 2014, the annual limitation on contributions for an individual with self-only coverage under a high deductible health plan is $3,300 and $6,550 for an individual with family coverage. Maximum contribution limits are adjusted annually for inflation. Individuals who are age 55 or older and eligible for an HSA are allowed an additional catch-up contribution. HSA withdrawals are not taxed at the state or federal levels as long as they are used for qualifying medical expenses of the account holder, his or her spouse or dependents.
Eligibility: To be eligible for an HSA an adult must meet all of the following four requirements: A person must have a qualifying high deductible health plan. A qualified high deductible health plan (HDHP) is one with a minimum deductible of $1,250 for an individual ($2,500 for a family). A qualified HDHP also must limit out-of-pocket expenses (not including premiums) to $6,350 annually per individual ($12,700 for a family). These limits are for the year 2014 and are adjusted annually for inflation.
A person cannot have any other non-HDHP coverage, although exceptions are allowed for accident, disability, dental, vision, and long-term care insurance. If a person has received Veteran’s benefits in the past three months, he or she is not eligible to contribute to an HSA. A person cannot be enrolled in Medicare and A person cannot be claimed as a dependent on another person’s tax return.
What expenses are eligible: Qualifying medical expenses include health insurance deductibles and co-payments, long-term care costs, prescription, dental expenses, eyeglasses and contact lenses, and many other medical expenses. Special rules apply to medical insurance premiums.
Generally, expenses for medical insurance premiums are not qualifying medical expenses for HSA expenditures, although there are some exceptions. HSA funds may used for Medicare Part A, B, C and D premiums.