How do HSA contributions work and are there any limits?
Contributions can be made by you, your employer, or a third party (e.g. family member or friend). Contributions can either be made on a tax-free basis through a Section 125 Plan or directly into the account on a tax-deductible basis. The IRS sets the maximum annual contribution limit. Generally, HSA contributions do not have to […]
If I use funds from my HSA for medical expenses, can I claim them as a deduction on my income tax?
No. Since eligible expenses are paid with tax-free dollars from your HSA, you cannot claim the same expenses on your income tax return.
If I am enrolled in single coverage under an HSA-compatible health plan, can HSA funds be used for my spouse or eligible dependent that are not under my health plan?
HSA funds can be used for you, your spouse or eligible dependents (as identified on your Federal tax return) even if they are not covered by the HSA-compatible health plan.
What happens if I use the funds for ineligible expenses?
An HSA allows you to withdraw funds for any reason. However, you would need to pay ordinary tax and an additional penalty of 20% on any funds that are withdrawn for an ineligible expense. You are responsible for determining if an expense is an eligible medical expense and maintaining receipts for tax reporting and potential […]
If I am terminated or lose HSA-compatible health plan coverage through my employer, can I continue to fund my HSA?
As long as you are eligible to contribute to the HSA, you can continue to fund it even after your employment ends with your current employer. If you lose your HSA-compatible health plan coverage and do not enroll in another HSA-compatible health plan, you will not be eligible to contribute to the HSA. However, you […]
What is my contribution limit if I become ineligible?
If you become ineligible to contribute to an HSA, (e.g. you have lost HSA-compatible health plan coverage or you have ineligible coverage), you will need to take the annual contribution limit and prorate it based on the number of months you were eligible.
Does an excess contribution affect my tax reporting?
If you have an excess contribution that remains in the HSA when you file your taxes, you will report the excess contribution. The funds will be taxed at the ordinary tax rate plus an excise tax. If you remove an excess contribution during a tax year, you will receive a 1099-SA document outlining the distribution. […]
How do I correct an excess contribution?
To correct an excess HSA contribution, do the following: Note: Any HSA corrections, including disbursements to correct excess contributions, must be completed by the tax filing deadline of April 15th following the tax year. This deadline is not affected by any submission to extend the tax filing deadline. Learn more
If I anticipate an excess contribution will occur, can I adjust or stop future payroll contributions to prevent the excess contribution?
HSA contribution elections can change at any time. Your employer may instruct you on specified time periods or the frequency that they will administer these changes.
If I switch health insurance coverage types, how do I determine my contribution limit?
If you switch from single coverage to family coverage, you are allowed to contribute the family maximum for the entire year. If you switch from family coverage to single coverage, you are required to prorate your contributions based on the number of months under each type of coverage. Example: Jane has family coverage 1/1/15 – […]
How do I prorate contributions?
If you determine you want or need to prorate contributions, you will need to take the annual contribution limit and prorate it for the number of months you were HSA eligible. Annual Contribution Limit ÷ 12 months × number of eligible months = Prorated Contribution
If I become eligible mid-year, am I required to prorate contributions on a monthly basis?
No. The IRS allows you to contribute the maximum annual contribution as long as you remain eligible through December 31 of the following year. If you are concerned that you may not remain eligible for the entire period, you may want to prorate contributions based on the number of months you were HSA eligible.
If I have family coverage under my HSA-compatible health plan, but I am the only eligible individual to contribute to an HSA, can I still contribute the HSA family maximum or am I limited to the single maximum?
Contribution limits are determined by your health insurance plan coverage. Plans with “single plus one” or “single plus child” coverage levels are treated as being family coverage and you may contribute the family maximum amount to your HSA.
What happens if I contribute more than the IRS limit in one year?
Contributions in excess of the IRS limit are subject to tax penalties. The combination of employee, employer and third party contributions may not exceed the annual IRS limits. If you are required to prorate your contribution limit, the prorated contribution will apply. In order to avoid the tax penalties, the IRS allows you to remove […]
If my spouse is covered by another health plan that is not an HSA-compatible plan, am I still HSA eligible?
To be eligible for an HSA, you must be covered by an HSA-compatible health plan and not be covered by any non-compatible plan. If your spouse is covered by an additional plan which does not cover you, you would remain HSA eligible. If your spouse’s plan also provides you with coverage, you would not be […]
How is an HSA “established”? Why does establishing an HSA matter?
An HSA is a custodial account (similar to an IRA) and must be “established” before you are eligible to make withdrawals from your HSA. Through Benefit Resource’s partnership with UMB Bank (as the trustee/custodian), an account is considered established on the later of a) the date you are first eligible for the HSA or b) when […]
Is an HSA the same as a Medical Flexible Spending Account (FSA) or Health Reimbursement Account (HRA)?
While an HSA is similar to a Medical FSA and HRA, there are several key differences. For example, an HSA has no “use-or-lose” provision as funds automatically carry over from year to year. The HSA is also portable if employment changes and funds can be invested. However, since an HSA provides an attractive tax benefit, […]
How is HSA activity reported for tax purposes?
The trustee/custodian of the account provides you and the IRS with IRS Form 5498-SA reporting all contributions to the account and IRS Form 1099-SA reporting distributions from the account. Tax-free contributions are reported on your W-2. Use these documents to complete IRS Form 8889, which is submitted with your Federal tax return.
How are HSA withdrawals monitored? Is there an expense verification process like an FSA or HRA?
Verification of expenses is not required for HSAs. However, total withdrawals from your HSA are reported to the IRS on Form 1099-SA. You are responsible for reporting qualified and non-qualified withdrawals when completing your taxes. You are also responsible for saving all receipts as verification of expenses in the case of an IRS audit.
Is there a time frame in which I must use my HSA funds?
An HSA allows you to pay for or get reimbursement for any services provided after the HSA has been established. There is no time frame in which you must use your HSA funds.
What can I use HSA funds for?
An HSA is designed to pay for any eligible medical expenses for you, your spouse or eligible dependents. This includes expenses paid toward deductibles, co-insurance, vision and dental.
What kinds of coverage would make me HSA ineligible?
Any health plan that is not an HSA-compatible plan would make you ineligible for an HSA. This includes coverage under a spouse’s plan which is not an HSA-compatible plan and coverage under a General Medical FSA or HRA. While you cannot be covered under a General Medical FSA or HRA, you should check with your […]
Who is eligible for an HSA?
To be eligible for an HSA, you must only be covered by an HSA-compatible health insurance plan, not enrolled in Medicare and not claimed as a dependent on another person’s tax return. Your eligibility to contribute to an HSA is determined on the first of each month.
What is an HSA-compatible health plan?
An HSA-compatible health plan is a health insurance plan that meets the guidelines set by the IRS regarding deductibles, out-of-pocket expenses and acceptable coverage. The health plan cannot provide benefits before the deductible is met, except for preventive care services. All co-payments or co-insurance (e.g. prescription drug costs) must be counted toward the deductible and […]
