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Does my contribution depend on when I establish my HSA account or when my HDHP coverage begins?
An exception is provided for an individual who becomes HSA-eligible after the beginning of a taxable year who does
not establish and HDHP as of the beginning of such year, generally January 1. In general, for tax years beginning
after 2006, an individual who becomes covered under an HDHP in a, month other than January may be permitted to make
the full HSA contribution for the year. An individual who is an eligible individual during the last month of a taxable
year is treated as having been an eligible individual during every month during the taxable year for purposes of computing
the amount that may be contributed to the HSA for the year. As a result, such individual is allowed to make contributions,
including catch-up contributions for months before the individual was enrolled in an HDHP. If an individual makes contributions
under the exception and does not remain an eligible individual during the testing period, the amount of the contributions
attributable to months preceding the month in which the individual was an eligible individual, which could not have been made
but for the provision, is includible in gross income. A 10 percent additional tax also applies to the amount includible.
An exception applies if the employee ceases to be an eligible individual by reason of death or disability. The testing period
is the period beginning with the last month of the taxable year and ending on the last day of the 12th month following such month.
The amount is includible for the taxable year of the first day during the testing period that the individual is not an eligible
individual.
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Do my contributions
provide any tax benefits?
Your personal contributions offer you an "above-the-line" deduction. An "above-the-line" deduction allows you to reduce your
taxable income by the amount you contribute to your HSA. You do not have to itemize your deductions to benefit. Contributions
can also be made to your HSA by others (e.g., relatives). However, you receive the benefit of the tax deduction.
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If my employer contributes to my HSA, does that also provide me any tax
benefit?
If your employer makes a contribution to your HSA, the contribution is not taxable to you the employee (excluded from income).
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Can I make contributions through my employer on a "pre-tax" basis?
If your employer offers a "salary reduction" plan (also known as a "Section 125 plan" or "cafeteria plan"), you (the employee) can make contributions to your HSA on a pre-tax basis (i.e., before income taxes and FICA taxes). If you can do so, you cannot also take the "above-the-line" deduction on your personal income taxes.
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Does tax filing status (joint vs. separate) affect my contributions?
Tax filing status does not affect your contribution.
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May a self-employed person contribute to an HSA on a pre-tax basis?
No. Self-employed persons may not contribute to an HSA on a pre-tax basis and may not take
the amount of their HSA contribution as a deduction for SECA purposes. However, they may
contribute to an HSA with after-tax dollars and take the above-the-line deduction.
Deductions
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Can I claim both the "above-the-line" deduction for an HSA and the itemized deduction for medical expenses?
You may be able to claim the medical expense deduction even if you contribute to an HSA. However, you cannot include any contribution to the HSA or any distribution from the HSA, including distributions taken for non-medical expenses, in the calculation for claiming the itemized deduction for medical expenses.
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Can I take a tax deduction for my HDHP premium?
Not at this time. President Bush has proposed allowing individuals not covered by an employer plan to deduct their HDHP premiums as well as their HSA contributions. However, this proposal will not be effective until enacted by Congress.
Special Circumstances
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I am over 55 but under 65. Are there additional advantages for me?
The government has allowed people over the age of 55 to
invest more than others into their HSAs through
"catch-up" contributions. This means that you are
allowed to invest additional money into your HSA for 2009
of $1000. If you turn
55 during any of the years above, you can only
contribute a pro-rated amount based on the number of
full months you are 55. These contributions must stop
once you become eligible for Medicare.
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Is there a chance HSAs will be repealed?
HSAs are an evolutionary step from existing government
legislation creating medical savings accounts. A great deal
of bipartisan thinking that has gone into the passage, by
Congress and the President, of this law. Any law can be
modified or repealed. If anything, it appears that lawmakers
are focusing on ways to increase the tax benefits of owning
HSAs (such as tax credits for employers), not limiting them.
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Can I pledge any part of my HSA as security for a loan?
Any portion of your HSA that you pledge as security for a loan will be treated
as a distribution for the year the pledge is made. The amount pledged is includable
in your gross income and a 10% premature distribution penalty tax on the pledged
amount may also be imposed.
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Will you provide tax advice in connection with my HSA?
Tax advice concerning your HSA will not be provided. It is your sole responsibility
to determine the tax consequences of establishing an HSA. Please discuss any questions
you may have with your tax advisor or HDHP provider agent.
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What happens if I don't use the money in the HSA for medical Expenses?
If the money is used for other than qualified medical expenses, the expenditure will
be taxed and, for individuals who are not disabled or over age 65, subject to a 10% tax penalty.
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I have an HSA but no longer have HDHP coverage. Can I still use the money that is already in the HSA for medical expenses tax-free?
Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage.
The funds in your account roll over automatically each year and remain indefinitely until used. There is no time limit on using the funds.
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What happens to the money in my HSA if I lose my HDHP?
Funds deposited into your HSA remain in your account and automatically roll over from one year to the next.
You may continue to use the HSA funds for qualified medical expenses. You are no longer eligible to contribute
to an HSA for months that you are not an eligible individual because you are not covered by an HDHP. If you have
coverage by an HDHP for less than a year, the annual maximum contribution is reduced; if you made a contribution
to your HSA for the year based on a full year's coverage by the HDHP, you will need to withdraw some of the
contribution to avoid the tax on excess HSA contributions. If you regain HDHP coverage at a later date, you can
begin making contributions to your HSA again.
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What happens to the money in an HSA after I turn 65?
You can continue to use your account tax-free for out-of-pocket health expenses. When you enroll in Medicare,
you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare.
If you have retiree health benefits through your former employer, you can also use your account to pay for your share
of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare
supplemental insurance or "Medigap" policy. Once you turn age 65, you can also use your account to pay for things
other than medical expenses. If used for other expenses, the amount withdrawn will be taxable as income but will
not be subject to any other penalties. Individuals under age 65 who use their accounts for non-medical expenses must
pay income tax and a 10% penalty on the amount withdrawn.
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What happens to the money in my HSA when I die?
What happens depends on how the HSA is designed. If your
spouse is designated as the beneficiary by you, your
spouse becomes the owner of the HSA when you die. If you
provide that it goes to your estate or other entity, the
value of the HSA at death is income to the estate or
other entity.
