Health Savings Accounts
Frequently Asked Questions
Q. What is a Health Savings Account (HSA)?
A. An HSA is a tax-exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of the account beneficiary who, for the months for which contributions are made to an HSA, is covered under a high-deductible health plan.
Q. Who is eligible to establish an HSA?
A. An eligible individual means, with respect to any month, any individual who:
- Is covered under a high-deductible health plan (HDHP) on the first day of such month.
- Is not also covered by any other health plan that is not an HDHP (with certain exceptions for plans providing certain limited types of coverage).
- Is not entitled to benefits under Medicare (generally, has not yet reached age 65)
- May not be claimed as a dependent on another person’s tax return.
Q. What is a High-Deductible Health Plan? (HDHP)
A. Generally, an HDHP is a health plan that satisfies certain requirements with respect to deductibles and out-of-pocket expenses. Specifically, for self-only coverage, an HDHP has an annual deductible of at least $1,100 and annual out-of-pocket expenses required to be paid (deductibles, co-payments and other amounts, but not premiums) not exceeding $5,500. For family coverage, an HDHP has an annual deductible of at least $2,200 and annual out-of-pocket expenses required to be paid not exceeding $11,000. In the case of family coverage, a plan is an HDHP only if, under the terms of the plan and without regard to which family member or members incur expenses, no amounts are payable from the HDHP until the family has incurred annual covered medical expenses in excess of the minimum annual deductible. Amounts are indexed for inflation. A plan does not fail to qualify as an HDHP merely because it does not have a deductible (or has a small deductible) for preventative care (e.g. first dollar coverage for preventative). However, except for preventive care, a plan may not provide benefits for any year until the deductible for that year is met.
Example (1): A Plan provides coverage for Bob and his family. The Plan provides for the payment of covered medical expenses of any member of Bob’s family if the member has incurred covered medical expenses during the year in excess of $1,100 even if the family has not incurred covered medical expenses in excess of $2,200. If Bob incurred covered medical expenses of $1,500 in a year, the Plan would pay $400. Thus, benefits are potentially available under the Plan even if the family’s covered medical expenses do not exceed $2,200. Because the Plan provides family coverage with an annual deductible of less than $2,200 the Plan is not an HDHP.
Example (2): Same facts as in example (1), except that the Plan has a $5,000 family deductible and provides payment for covered medical expenses if any member of Bob’s family has incurred covered medical expenses during the year in excess of $2,200. The Plan satisfies the requirements for an HDHP with respect to the deductibles.
Q. What are the special rules for determining whether a health plan, that is a network plan, meets the requirements of an HDHP?
A. A network plan is a plan that generally provides more favorable benefits for service provided by its network of providers than for services provided outside of the network. In the case of a plan using a network of providers, the plan does not fail to be an HDHP (if it would otherwise meet the requirements of an HDHP) solely because the out-of-pocket expense limits for services provided outside of the network exceeds the maximum annual out-of-pocket expense limits allowed for an HDHP. In addition, the plan’s annual deductible for out-of-network services is not taken into account in determining the annual contribution limit. Rather, the annual contribution limit is determined by reference to the deductible for services within the network.
Q. What kind of other health coverage makes an individual ineligible for an HSA?
A. Generally, an individual is ineligible for an HSA if the individual, while covered under an HDHP, is also covered under a health plan (whether as an individual, spouse, or dependent) that is not an HDHP.
Q. What other kinds of health coverage may an individual maintain without losing eligibility for an HSA?
A. An individual does not fail to be eligible for an HSA merely because, in addition to an HDHP, the individual has coverage for any benefit provided by “permitted insurance.” Permitted insurance is insurance under which substantially all of the coverage provided relates to liabilities related to ownership or use of property (e.g., automobile insurance), insurance for a specified disease or illness, and insurance that pays a fixed amount per day (or other period) of hospitalization.
In addition to permitted insurance, an individual does not fail to be eligible for an HSA merely because, in addition to an HDHP, the individual has coverage (whether provided through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care. If a plan that is intended to be an HDHP is one in which substantially all of the coverage of the plan is through permitted insurance or other coverage as described in this answer, it is not an HDHP.
Q. How does an eligible individual establish an HSA?
A. Any eligible individual can establish an HSA at a qualified custodian, in much the same way that individuals establish IRAs. An eligible individual who is an employee may establish an HSA account with or without involvement of the employer.
Q. Does the HSA have to be opened at the same institution that provides the HDHP?
A. No. The HSA can be established through a qualified custodian who is different from the HDHP provider. Where a custodian does not sponsor the HDHP, the custodian may require proof or certification the account beneficiary is an eligible individual, including that the individual is covered by a health plan that meets all of the requirements of an HDHP.
Q. Who may contribute to an HSA?
A. Any eligible individual may contribute to an HSA. For an HSA established by an employee, the employee’s employer or both may contribute to the HSA of the employee in a given year. For an HSA established by a self-employed (or unemployed) individual, the individual may contribute to the HSA. Family members may also make contributions to an HSA on behalf of another family member as long as the other family member is an eligible individual.
Q. How much may be contributed to an HSA in calendar year 2016?
A. The maximum annual contribution to an HSA for self-only coverage is $3,350. For eligible individuals with family coverage under an HDHP, the maximum contribution is $6,750. In addition to the maximum contribution amount, catch-up contributions, may be made by or on behalf of individuals age 55 or older and younger than 65. There are some limitations based on whether or not one continues to be eligible for the entire contribution year, consult your tax advisor for details.
Q. If one or both spouses have family coverage, how is the contribution limit computed?
A. In the case of individuals who are married to each other, if either spouse has family coverage, both are treated as having family coverage. If each spouse has family coverage under separate health plans, both spouses are treated as covered under the plan with the lowest deductible. The contribution limit for the spouses is the lowest deductible amount, divided equally between the spouses unless they agree on a different division. The family coverage limit is reduced further by any contribution to an Archer MSA. However, both spouses may make the catch-up contributions for individuals age 55 or over without exceeding the family coverage limit.
Q. In what form must contributions be made to an HSA?
A. Contribution to an HSA must be made in cash. For example, contributions may not be made in the form of stock or other property. Payments for the HDHP and contributions to the HSA can be made through a cafeteria plan.
Q. What is the tax treatment of an eligible individual HSA contribution?
A. Contributions made by an eligible individual to an HSA are deductible by the eligible individual in determining adjusted gross income (i.e., “above-the-line”). The contributions are deductible whether or not the eligible individual itemizes their deductions. However, the individual cannot also deduct the contributions as medical expense deductions under section 213.
Q. What is the tax treatment of contributions made by a family member on behalf of an eligible individual?
A. Contributions made by a family member on behalf of an eligible individual to an HSA are deductible by the eligible individual in computing adjusted gross income. The contributions are deductible whether or not the eligible individual itemizes their deductions. An individual who may be claimed as a dependent on another person’s tax return is not an eligible individual and may not deduct contributions to an HSA.
Q. What is the tax treatment of employer contributions to an employee’s HSA?
A. In the case of an employee who is an eligible individual, employer contribution to the employee’s HSA are treated as employer-provided coverage for medical expenses under an accident or health plan and are excludable from the employee’s gross income. The employer contributions are not subject to withholding from wages for income tax or subject to the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), or the Railroad Retirement Tax Act. Contributions to an employee’s HSA through a cafeteria plan are treated as employer contributions. The employee cannot deduct employer contributions on his or her federal income tax return as HSA contributions or as medical expense deductions under section 213.
Q. What is the tax treatment of an HSA?
A. An HSA is generally exempt from tax (like an IRA or Archer MSA), unless it has ceased to be an HSA. Earnings on amounts in an HSA are not includable in gross income while held in the HSA (i.e., inside buildup is not taxable).
Q. When may HSA contributions be made? Is there a deadline for contributions to an HSA for a taxable year?
A. Contributions for the taxable year can be made in one or more payments, at the convenience of the individual or the employer, at any time prior to the time prescribed by law (without extensions) for filing the eligible individual’s federal income tax return for that year, but not before the beginning of that year. For calendar year taxpayers, the deadline for contributions to an HSA is generally April 15 following the year for which the contributions are made. Although the annual contribution is determined monthly, the maximum contribution may be made on the first day of the year.
Q. Are rollover contributions to HSAs permitted?
A. Rollover contributions from Archer MSAs and other HSAs into an HSA are permitted. Rollovers are not subject to the annual contribution limits. Rollovers from a health reimbursement arrangement (HRA), or from a health flexible spending arrangement (FSA) to an HSA are permitted if that plan has been amended to allow this. Rollovers from an IRA are permitted as a one-time (once in a lifetime) tax-free distribution and are subject to the HSA contribution limits.Back to Top