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Health Care Savings Accounts (HSAs). MT200704HR. Revised July 2011. Health Care Savings Accounts (HSAs). MT200704HR. Revised July 2011. Authors.

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Health Care Savings Accounts (HSAs)

MT200704HR

Revised July 2011


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Health Care Savings Accounts (HSAs)

MT200704HR

Revised July 2011


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Authors

Joel SchumacherExtension Economics Associate SpecialistDept. of Agricultural Economics & EconomicsMarsha Goetting Professor & Extension Family Economics SpecialistDept. of Agricultural Economics & EconomicsPatricia Q. BrennanSenior Extension TrainerRutgers Cooperative Extension-New Jersey


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What is an HSA?

  • Special saving account established by Federal law

  • Use to pay for future qualifying medical expenses

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Benefits of HSA

  • Deposits made reduce individual’s State & Federal taxes

  • Unused funds can be carried over from year to year

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Benefits of HSA

  • Withdrawals for qualifying medical expenses are tax free

    • Federal

    • State

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Qualifying Medical Expenses

  • Health insurance deductibles

  • Co-payments

  • Long-term care costs

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Qualifying Medical Expenses (con'd)

  • Prescriptions

  • Dental expenses

  • Eyeglasses & contact lenses

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IRS Publication 502

  • List of common qualifying medical expenses:

  • Search for“Publication 502”

    • www.irs.gov

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Paying Medical Expenses Before HSA was established

  • Funds in HSA can only be used to pay for qualifying medical expenses that were incurred after HSA was established

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Eligibility

  • Must meet ALL four requirements:

    • Have a qualifying high deductible health plan (HDHP):

      Minimum deductibles:

      • $1,200 individual

      • $2,400 family

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Out-of-Pocket Expenses

  • Limit of out-of-pocket annual expenses (not including premiums) to:

    • $5,950 per individual

    • $11,900 for family

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Eligibility (con'd)

  • Cannot have any other health insurance coverage

    Exceptions:

    • Accident Coverage

    • Disability Insurance

    • Dental Insurance

    • Vision Insurance

    • Long-term care Insurance

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Veteran’s Benefits

  • If received Veteran’s benefits in the past three months, not eligible to contribute to HSA

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Eligibility (con'd)

  • Cannot be enrolled in Medicare

  • Cannot be claimed as a dependent on another person’s tax return

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Opening an HSA account

  • Can be established at:

    • Banks

    • Credit Unions

    • Insurance Companies

    • Mutual Fund Companies

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Savings Accounts

  • Cannot use established savings account as an HSA

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Comparison of HSA providers

  • www.hsainsider.com

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HSA Fees

  • Financial institutions may have:

    • Minimum balance & deposit requirements

    • Check writing fees

    • Monthly maintenance fees

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HSA Contribution

  • Maximum amount (2011):

    • $3,050 single

    • $6,150 family

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Catch-up Contribution

  • Must be 55 or older

  • Maximum allowable:

  • 2011: $1,000

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HSA Deposits

  • Do not need to be made all at one time:

    • Regular

    • Irregular basis

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HSA Deposits (con'd)

  • Deposits can be made any time of the year

  • As late as April 15 of the following year to qualifyfor State & Federal income tax deduction

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Reporting an HSA

  • IRS Form 8889 (State & Federal)

    • Part 1: Contributions & Deductions

    • Part 2: Distributions & Penalties for non-qualified withdrawals

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Taxation of Withdrawals

  • Qualifying medical expenses are not taxed

  • Non-qualifying expenses are subject to:

    • State & Federal income taxation

    • 20% penalty

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ExampleNon-Qualifying Withdrawals:

  • Frank had an unexpected car repair bill

    • Withdrew $500 from HSA for car repairs

      • Not a qualifying medical expense

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ExampleNon-Qualifying Withdrawals (con'd):

  • $500 withdrawal reported as income on Frank’s State & Federal tax returns

  • 20% percent penalty of $500

    • $500 x 20% = $100

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65 or older

  • No 20% penalty fornon-qualifying medical expenses

    • Withdrawal is subject to State & Federal income taxation

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Change Jobs or Retire

  • Eligibility is not directly affected by an individual’s employment status

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Death of Account Holder

  • Transferred to the named beneficiary on HSA account

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Death of Account Holder (con'd)

  • If beneficiaries are not designated then the account passes according to:

    • Owner’s will

    • Montana law of Intestate Succession

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Transferring Funds

  • One-time only transfer from:

    • Individual Retirement Account (IRA)

    • Flexible Spending Account (FSA)

      • Remaining Balance

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Transferring Funds

  • Fund transferred from IRA to HSA are not subject to the 20% penalty

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Partial Year Eligibility

  • Different rules apply to individuals who are eligible for only a portion of a year

    • If eligible on December 1st, considered eligible for the entire year

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Partial Year Eligibility (con'd)

  • If not eligible on December 1 then contribution limits are prorated for the period of eligibility.

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Example:Partial Year Eligibility

  • January 1

    • Jane eligible for an HSA

  • July 1

    • Jane enrolled in a traditional health care plan through her employer

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Example:Partial Year Eligibility (con'd)

  • Jane’s employer does not offer a high deductible health plan:

    • Contribution limit is pro-rated based on half-year eligibility:

      • $3,050 x ½ = $1,525

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Additional Resources:

  • Federal Health Care Savings Accounts (HSA) U.S. Department of Treasury HSA Web site: www.treas.gov/offices/public-affairs/hsa

  • Montana Medical Care Savings Accounts (MSA) www.montana.edu Search “MSA”

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HSA MontGuide

  • Health Care Savings Accounts (HSA) MontGuide:

    • www.montana.edu

    • Search “HSA”

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Health Care Savings Accounts (HSAs)

Questions?

Revised July 2011

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