What is an HSA?
Health Savings Accounts (HSAs) are tax-exempt accounts where funds grow
to pay for medical expenses. They were created to help give control back
to consumers and lower healthcare costs. HSAs provide a financial
incentive for consumers to select a High Deductible Health Plan (HDHP).
HDHPs have lower monthly premiums than traditional plans. The HSA/HDHP
combination provides consumers with more incentive to shop carefully for
healthcare services.
An HSA is your account. If you switch jobs, the HSA goes with you. Your
money rolls over every year. There is no "use it or lose
it" requirement.
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IRS Requirements for 2006 |
|
| |
Single Plan |
Family Plan |
|
Minimum Deductible |
$1,050.00 |
$2,100.00 |
|
Maximum Out-of-Pocket |
$5,250.00 |
$10,500.00 |
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IRS Requirements for 2007 |
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| |
Single Plan |
Family Plan |
|
Minimum Deductible |
$1,100.00 |
$2,200.00 |
|
Maximum Out-of-Pocket |
$5,500.00 |
$11,000.00 |
Contact your insurance carrier to verify your HDHP qualifies for an HSA.
Contributions
When you have a qualifying HDHP, the following contribution guidelines
apply.
- Anyone can contribute to your HSA.
- Your contributions are tax deductible.
- If your employer contributes to your HSA, that contribution is done
on a pre-tax basis.
- Any pay-roll deductions made through Section 125 for your HSA are
also on a pre-tax basis.
New
Benefits--Beginning January 1, 2007 for 2007 Contributions:
- You may contribute the annual maximum amount as determined by the
IRS, regardless of your plan’s deductible. The maximum for 2007 is
$2,850 for individuals and $5,650 for families.
- You may contribute the annual maximum amount determined by the IRS,
regardless of when your coverage begins, if you maintain coverage for
the 12-month period beyond the calendar year in which you first became
eligible.
- Example: if you have individual coverage that begins in November
2007, you may still contribute $2,850 for 2007 when you maintain
coverage through the end of 2008.
- Your employer may roll over funds from your HRA or FSA
account once, according to the legislative provisions.
- If your employer allows the FSA extension where 2006 FSA funds can
be used until March 15, 2007, you may still contribute to an HSA, if
your FSA balance is zero or the FSA balance is transferred to an HSA
by January 1st, 2007.
Distributions
Here are some key points about distributions:
- You can use your money tax-free at any time for eligible medical
expenses.
- When you turn 65, you can use the money for non-eligible medical
expenses. The money is subject to income tax, and there are no IRS
penalties.
If you are under age 65 and use your money for non-eligible medical
expenses, you will be subject to income tax and a 10% tax penalty.
Comparing HSA’s, HRAs and FSAs
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Question |
HSA |
HRA |
FSA |
|
Do the funds belong to the employee? |
YES |
NO |
YES |
|
Can the money be invested and the employees earn interest? |
YES |
NO |
NO |
|
Can the employees use the funds for things other than medical
expenses? |
YES |
NO |
NO |
|
Can the employee take the money with them if they switch
employers? |
YES |
NO |
NO |
|
Do the funds rollover year-to-year? |
YES |
Generally, No |
NO |
|
Who can contribute to the account? |
Employers and/or Individuals |
Employers |
Employee |
HRAs are employer owned. FSAs have the "use it or lose it
clause". Money has to be spent by the end of the calendar year or it
is forfeited to your employer.
Health Savings Account Contribution Limits
On December 20, 2006, President George Bush signed the Health
Opportunity Empowerment Act of 2006 into law, creating new
contribution provisions for the HSA. Below you will find a table outlining
the contribution limits and regulations for 2006 and the changes that take
affect for 2007.
| |
2006 |
2007 |
|
What is the maximum contribution for individual health plans? |
The lesser of your deductible or the contribution maximum of
$2,700.
If your deductible is less than the contribution maximum, you
can contribute your deductible amount. If your deductible is
greater than the contribution maximum, you can contribute the
maximum contribution limit listed above. |
$2,850, regardless of deductible.
If an individual does not stay in the HSA-eligible plan 12
months following the last month of the year of the first year of
eligibility, the amount which could not have been contributed will
be included in income and subject to a 10 percent additional tax.
Example:
You established a qualified health plan in December
2007 and contributed the maximum allowed. Then in January 2008 you
contributed the maximum contribution for that tax year.
Scenario 1: You maintained coverage through
December 31, 2008. You are eligible for the maximum contribution
for both 2007 and 2008.
Scenario 2: You ended coverage April 1, 2008.
Eleven-twelfths of the December 2007 contribution must be treated
as income, plus a 10% penalty on that amount must be paid.
Nine-twelfths of the funds deposited in January must be taken out
of the account as an excess contribution (and treated as income)
but no 10% penalty is incurred.
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What is the maximum contribution for family health plans? |
The lesser of your deductible or the contribution maximum of
$5,450.
If your deductible is less than the contribution maximum, you
can contribute your deductible amount. If your deductible is
greater than the contribution maximum, you can contribute the
maximum contribution limit listed above. |
$5,650, regardless of deductible.
See above for exceptions
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Are contributions prorated by the number of months the health
plan is in place? |
Yes
To prorate contributions:
Divide your deductible amount by 12. (Deductible / 12 = monthly
contribution)
Take the monthly contribution and multiple it by the number of
months left in the year.
(Monthly contribution * number of remaining months =
contribution limit)
This number is the maximum you can contribute for the calendar
year.
|
Pro-rating of contributions occurs when the status of an HSA
changes from family to single, or if the HSA qualified health plan
is terminated.
Examples:
Coverage Beginning Mid-year
If you have a new HDHP and coverage begins in July, 2007,
you will be eligible to contribute the maximum amount as
determined by the IRS ($2,850 for individual coverage and $5,650
for family coverage.)
Health Plan Status Change
If you have family coverage beginning January 1, 2007 and switch
to single coverage July 1, 2007, you will be eligible to
contribute 6/12 of $5,650 plus 6/12 of $2,850 or $4,250.
HSA Qualified health plan terminated
You have a qualified family health plan January 1, 2007 and
terminate coverage April 1, 2007. You are eligible to contribute
3/12 of $5,650 or $1,412.50.
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What is the catch-up contribution if I am 55 or older? |
$700 |
$800 |
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Can I roll over unused funds from an FSA or HRA?
|
No |
Yes, regulations now allow you to roll over unused
funds from an FSA or HRA on a one-time basis. Please talk to your
employer or third-party administrator for specific details. |
|
Can I transfer funds from an IRA to my HSA? |
No |
Yes, regulations allow a one-time rollover from an IRA
to an HSA, up to the annual HSA contribution maximum. Prior to
transferring funds, please consult your tax advisor to discuss the
benefits and tax reporting requirements. |
2008 HSA Deductibles
|
|
Minimum
Deductible |
Maximum
Out-of Pocket |
Contribution
Limit |
Catch-Up Contribution
(If over age 55) |
|
Individual Coverage |
$ 1,100 |
$ 5,600 |
$ 2,900 |
$ 900 |
|
Family Coverage |
$ 2,200 |
$ 11,200 |
$ 5,800 |
$ 900 |
Tax Advantages of a Health Savings Account
Federally Qualified HSAs are tax-deductible, tax-deferred, and
tax-free.
- Tax-deductible: Contributions to your HSA can be deducted from
your gross income.
- Pre-tax: Contributions made to your HSA through payroll
deductions.
- Tax-deferred: Your HSA money grows without being taxed.
- Tax-free: You can use your HSA money tax free for eligible medical
expenses.
Over the life of your HSA, you can save thousands of dollars in taxes.
For the 2007 tax year and going forward, your clients can enjoy even
greater tax benefits with increased contribution potential.
Eligible HSA Medical Expenses
|
abdominal supports
acupuncture
air conditioner (relief allergy/breathing problems)
alcoholism treatment
ambulance
anesthetist
arch supports
artificial limbs
autoette (used for relief of sickness/disability)
blood tests
blood transfusions
braces
cardiographs
chiropractor
Christian Science Practitioner
contact lenses
convalescent home (medical treatment only)
crutches
dental treatment
dental x-rays
dentures
dermatologist
diagnostic fees
diathermy
drug addiction therapy
drugs (prescription)
elastic hosiery (prescription)
eyeglasses
fees paid to doctor prescribed health institute
FICA and FUTA tax paid for medical care service
fluoridation unit
guide dog
gum treatment
gynecologist
healing services
hearing aids and batteries
hospital bills
hydrotherapy
insulin treatments
lab tests
lead paint removal
legal fees (to authorize treatment for mental illness)
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lodging (away from home outpatient care)
metabolism tests
neurologist
nursing (including board and meals)
obstetrician
operating room costs
ophthalmologist
optician
optometrist
oral surgery
organ transplant (including donor’s expenses)
orthopedic shoes
orthopedist
osteopath
over the counter drugs
oxygen and oxygen equipment
pediatrician
physician
physiotherapist
podiatrist
postnatal treatments
practical nurse for medical services
prenatal care
prescription medicines
psychiatrist
psychoanalyst
psychologist
psychotherapy
radium therapy
registered nurse
special school costs for the handicapped
spinal fluid test
splints
sterilization
surgeon
telephone or TV equipment to assist
the hard of hearing
therapy equipment
transportation expenses (relative to
health care)
ultraviolet ray treatment
vaccines
vasectomy
vitamins (if prescribed)
wheelchair
x-rays
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* Federally Qualified HSA:
To have a Federally Qualified HSA, you must purchase and maintain a
high-deductible insurance policy and you cannot be covered by another
low-deductible insurance policy.
* Please note the conditions of your plan: We strongly recommend
that you always comply with the conditions of your plan, including
pre-certification requirements. |
