Q: What is a Health Savings Account?
A: Health Savings Accounts (HSAs) are another option when it comes to conventional health insurance. It is a tax
free savings account that gives you the power to decide how to pay for your medical care. You can pay for qualified medical
expenses now or save for future medical expenses – all while earning interest on your money!
Section 223 of the Internal Revenue Code (IRC) identifies Health Savings Accounts as: a tax- exempt trust or custodial account that
eligible individuals who are covered by a qualified High Deductible Health Plan (HDHP) can establish to pay or reimburse for qualified
medical expenses of the eligible individual, their spouse, and his/her tax dependents.
Q: What is a qualified High Deductible Health Plan (HDHP)?
A: In order to obtain an HSA, you must have a qualifying High Deductible Health Plan (HDHP). An HDHP has a lower premium
than conventional health plans, but has a high deductible that must be reached before the plan starts paying. Prescription drugs
must be covered under the deductible. An HSA helps you pay for the medical expenses not covered by your HDHP – tax free.
In order for an HDHP to be considered "qualified" for 2010, it must follow the guidelines in the matrix below:
|
Coverage
|
Annual Deductible 2010/2011
|
Annual Out-of-Pocket Expenses 2010/2011
|
| Individual |
$1,200 minimum* |
Not more than $5,950* |
| Family |
$2,400 minimum* |
Not more than $11,900* |
Q: Why a High Deductible Health Plan?
A: In order to receive the benefits of an HSA, the law requires that the HSA be accompanied with a High Deductible Health plan (HDHP).
An HDHP has a lower preimium than conventional health plans because a company does not have to process and pay claims for
routine, low-dollar medical care. An HDHP typically has a high deductible that must be met before the plan starts paying.
Q: Who is eligible?
A: Eligibility is determined on a month-to-month basis. An eligible individual must NOT be:
- Participating in any other health coverage that reimburses for similar expenses, including a General Purpose FSA*.
- Enrolled in Medicare.
- Claimed as a dependent on another person's tax return.
Dental, vision, disability, long-term care, and some types of supplemental insurance that are specific to a disease and will
pay a certain amount when the policy is initiated are permissible. Please contact an HSA Specialist for additional questions on this topic.
* If your spouse has a General Purpose FSA with his/her employer that allows reimbursements for your expenses, you are disqualified
from contributing to an HSA.
Q: How does it work?
A: Funds that are deposited tax-free into an HSA are used for qualified medical expenses not covered by insurance or
that fall short of your plan's deductible.
You can access your funds by using your HSA debit card, requesting distribution from your online account, or by faxing/mailing
a Distribution Form to us. See Distributions for more details.
If your employer offers Section 125, you can contribute to your HSA tax free through payroll deduction. If your employer does
not offer Section 125, your contributions will be considered a "Straight Line Deduction" off of your gross income. See Contributions for more details.
Q: What are the fees associated with an HSA?
A: Fees vary. See our fee schedule for details.
Q: What are the benefits of an HSA?
A: HSAs offer the benefit of tax-advantaged savings and reduced taxable income, which can appeal to everyone,
regardless of your income level. Individuals can set aside income that is tax-free and are able to build an asset
that they can use in their retirement years; and/or can reduce their medical costs right now.
- HSAs allow you to invest in yourself!
- Eligible individuals (add link to Who is Eligible) can make contributions and get an “above the line” tax deduction!
- Balances roll over from year to year! No "Use it or Lose it!"
- Contribution dollars are invested in interest bearing accounts – and the interest is tax free!
- Flexibility!
- HSA dollars can pay for qualified medical expenses as defined by the IRS. Eligible medical expenses
(add link to HSA Eligible Expenses) would include deductibles, co-payments, dental, vision expenses, or doctor appointments, as
long as these expenses are not covered by other insurance.
- Portability!
- No matter where you go, your account follows you!
- Even if you change jobs, change medical coverage, become unemployed, move to another state, or change your marital status, your HSA goes with you!
- You own it!
- Tax Savings!
The three-tiered tax savings are hard to beat:
- Tax-free contributions
- Tax-free growth
- Tax free distributions for qualified medical expenses
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Contributions
Q: How much can I contribute?
A: For 2010 and 2011, an individual
can contribute up to $3,050 and a family can contribute up to $6,150. If you are age 55 – 65
(or 65 and older if you are not enrolled in Medicare), you are eligible to contribute a catch up contribution of $1,000 for
per year. It does not matter what month you turn 55 during the tax year. For example, if you are turning 55 in November
2010, you are eligible to take advantage of the catch up contribution.
If you over contribute, you are responsible for withdrawing the excess amount by April 15th of the following year. You are required
to pay income taxes on the excess contribution. If you fail to do this, you will pay a 6% excise tax on the excess contributions
every year thereafter.
Note: If you have a qualified HDHP in 2010, you have until April 15th, 2011 to establish an HSA. However, eligible expenses incurred
before the establishment of your HSA are not reimbursable tax free. Qualified expenses incurred after the establishment of your HSA
can be reimbursed tax free.
Q: What are the "catch-up" contributions for individuals 55 or older?
A: The catch up contribution is $1,000 per year. You have until
April 15th of the following year to make your contribution. To be eligible for the catch up contribution, you must be between the ages of 55 and 65.
If you turn 65 during the tax year, and enroll in Medicare, you are no longer eligible to contribute to an HSA. The maximum
contributions allowed should be prorated. For example, you turn 65 on July 1, 2010 and have an individual HDHP paired with an
HSA. The normal maximum contribution amount for your HSA during 2010 is $3,050 and your catch up contribution is $1,000
totaling $4,050. Since you are enrolling in Medicare on July 1, 2010, you will only be able to contribute 6 months worth of
the $4,050 (6/12 of $4,050 = $2,025). The maximum that you can contribute for the 2010 tax year is $2,025.
Q: In what form must contributions be made to an HSA?
A: Contributions must be made in cash. Contributions may not be in the form of stock or other property.
Q: What is the latest date that I can contribute to my HSA?
A: The filing date of the current year tax return. Normally April 15th unless you file for an extension.
Q: If both spouses have a qualified high deductible health plan with family coverage, how is the contribution computed?
A: If both spouses have qualified high deductible health plans with family coverage, and both are eligible to contribute to an
HSA, the contribution limit for both HSAs, combined, is based on the maximum amount that can be contributed for a family, $6,150 for 2010 and 2011.
If both eligible spouses wish to contribute to an HSA, the contribution amount can be divided equally between the spouses
unless they agree on a different division.
Q: If one spouse has family coverage and the other spouse has individual coverage, how is the contribution computed?
A: HSA contribution limits contain a special rule for married individuals. Under the "Special Rule", if one spouse has family QHDHP
coverage, then the maximum that can be contributed to an HSA is the limit for family coverage, even if the other spouse has individual QHDHP
coverage. However, since both spouses are eligible individuals, they can divide the contributions between the spouses.
Example: Sue has family coverage, Jack has individual coverage. The maximum amount that Sue and Jack can contribute is $5,950 (2009) which
can be divided between them if both wish to establish their own HSA account.
Click here to see a matrix of HSA Matrix of Eligibility and Contributions.
Q: Are rollover contributions to HSAs permitted?
A: Rollover contributions from HSAs, MSAs, FSAs, HRAs, and IRAs may be permitted.
- HSAs and MSAs
HSA and MSA rollover contributions to an HSA can be made. A rollover contribution is any amount distributed to an HSA Account Holder
from another HSA or MSA. The HSA Account Holder has 60 days to deposit the distribution, after it is received, in order for it to be
considered a rollover. HSA rollovers are not subject to yearly HSA maximum contribution limit. HSA Account Holders can only take
advantage of this once every 12 months.
- Health FSAs and HRAs
For a limited time only, until December 31, 2011, qualified HSA distributions meeting specific criteria may be directly rolled
over, tax-free, from HRAs or health FSAs into an HSA. One qualified HSA distribution is allowed per HRA or health FSA of an
individual and the individual must have had a positive balance on September 21, 2006 in his/her HRA or health FSA. The rollover
does count towards maximum HSA contribution limits. Your employer will have specific information on its health FSA or HRA.
- IRAs
An HSA eligible individual may irrevocably elect to make a once-in-a-lifetime, tax-free, direct trustee-to-trustee transfer of a
"qualified HSA funding distribution" from his/her IRA into his/her HSA. Transfers may not be made from SEPS or SIMPLE IRAs. Transferred
amounts are not included in gross income. HSA funding distributions do count towards maximum HSA contribution limits.
Q: What happens to my HSA funds if I exceed my contribution limit?
A: It is your responsibility as the Account Holder to determine if you have exceeded the maximum allowable amount for the year. It is also
your responsibility to request the distributions of those funds before the tax filing date of the current tax year. If you do not
withdraw the excess contribution by your tax filing date, you are subject to a 6% excise tax on those excess contributions for each taxable year thereafter.
Q: Can I have an HSA if I am enrolled in Medicare?
A: If you have an HSA at the time you enroll in Medicare, you are no longer eligible to contribute to
an HSA. You can still use your HSA funds for qualified medical expenses tax-free. If you choose to use the funds for
non-qualified medical expenses, and you are age 65 and older, you only have to pay income taxes on the funds – the 10%
additional tax penalty does not apply to you.
If you are enrolled in Medicare, you are not considered an eligible
individual. You would not be able to establish an HSA.
Q: I am eligible for Medicare, but I have not enrolled. Can I have an HSA?
A: If you are Medicare eligible, but you have not enrolled in Medicare, you qualify for an HSA if you meet all other eligibility requirements.
Q: I have a self-only, high deductible health plan and my spouse has a low deductible plan, can I make contributions to an HSA?
A: As long as your high deductible health plan is an HSA qualified high deductible health plan, you are not covered by your spouse's
low deductible health plan, and you meet all other eligibility requirements, you can make contributions to an HSA.
HSA funds can be used, tax free, for qualified medical expenses for yourself, your spouse (regardless of his or her insurance coverage),
and your dependents!
Q: Both spouses have qualified high deductible health plans. One has family coverage and the other has single
coverage, and they both want to contribute to their individual HSAs. What is the contribution limit?
A: The "Special Rules for Married Individuals", see the HSA Matrix of Eligibility and Contributions for more
details, says that the maximum contribution limit for both spouses combined, is based on the family limit
of $6150 for 2010 and 2011. This contribution amount can be divided between the spouses either evenly or at another agreed amount.
Q: Husband and wife work for different employers, each have an HDHP and are eligible to contribute to an HSA. The
husband is allowed to contribute to his HSA through a cafeteria plan, but his wife is not. Can the husband simply make all the contributions
to both HSAs through his cafeteria plan?
A: No, only the husband can make contributions through his cafeteria plan since his employer is the one that is allowing him to
do so. The husband’s contributions are pre-taxed since the payroll deductions are going through his employer’s cafeteria plan. The
wife’s contributions are made after tax since her employer does not offer a cafeteria plan. The wife’s contributions will be
considered to be a "Straight Line Tax Deduction" on the annual income tax return.
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Using Your HSA (distributions)
Q: What are qualified medical expenses?
A: Qualified Medical expenses are dental, prescription drugs, over the counter medication, vision, doctors' office
visits, hearing, hospital bills, etc. as long as such amounts are not reimbursed by insurance or otherwise. You can view a
list of
HSA Eligible Medical Expenses or refer to the
IRS Publication 502 for more specific details.
Q: Can I pay my health insurance premiums with funds from my HSA?
A: Generally, HSA funds cannot be used to pay for health insurance premiums tax-free. However, there are exceptions
for some premiums where distributions are considered qualified. You can use your HSA funds to pay for health insurance
premiums if you are collecting Federal or State unemployment benefits, if you have COBRA continuation coverage through a
former employer, or have Medicare part A, B, C, or D (supplemental medical coverage premiums do not quality).
Q: What happens to the money in my HSA if I lose my qualified high deductible health plan?
A: If you lose qualified HDHP Coverage or become ineligible, you can no longer contribute to your HSA. However, you can
still use your HSA funds to pay for qualified medical expenses. If you chose to withdrawal funds for something other than
qualified medical expenses, you are required to pay income taxes and a 10% additional tax penalty on those funds.
An HSA is portable. That is one of the benefits of this account. No matter where you go, your HSA will follow you! Even if
you change jobs, change medical coverage, become unemployed, move to another state, or change your marital status, your
HSA still goes with you. You own it!
Q: What happens to the money in my HSA if I don't use it by the end of the year?
A: : Your HSA funds remain in your account and earn interest. There is no "use it or lose it" rule like there
is with a flex account.
Q: How do I access the money in my HSA?
A: Accessing funds from your HSA has never been easier. You have three options:
- Use your HSA Debit Card
- Request a distribution online by logging into your account 24/7
- Fax or Mail a Distribution Form
Q: Can my spouse or dependant have an HSA debit card?
A: Yes, your spouse or dependant may have an HSA debit card. They must be at least 18 years of age. There is a one
time $15 fee for each Dependent Debit Card issued. To request a card, please complete
the Request for Dependent Debit Card form and either fax or mail it to the information provided on the form.
Q: Can I close my HSA at any point?
A: Yes, you may close your HSA at any time. Keep in mind that you must pay income taxes and a 10% additional tax
penalty on funds distributed for non-qualified medical expenses. There is a $20 fee to close your HSA with AFHSA.
Q: What happens to my HSA if I change employers?
A: An HSA is portable. That is one of the benefits of this account. No matter where you go, your HSA will follow you!
Even if you change jobs, change medical coverage, become unemployed, move to another state, or change your marital status,
your HSA still goes with you. You own it!
Q: What happens to my HSA if I die?
A: The HSA account is transferred to the named beneficiary. If the beneficiary is the surviving spouse, then the account
stays the same and can be used for qualified medical expenses. Any distributions that are non-qualified medical expenses are
subject to income tax rules. If the beneficiary is not the surviving spouse, then the HSA ceases to be an HSA and is subject to income tax.
Q: What happens when a distribution is mistakenly made for non-qualified medical expenses? Can the funds be re-deposited into the HSA?
A: Yes, but this can cause some extra administration and record keeping on your part. Please contact us for procedures specific
to your case should this arise.
We recommend "replacing" the funds that were mistakenly dispersed for non-qualified medical
expenses with other qualified medical expenses that are occurred within the same tax year. For example: On 03-01-10, John is
not feeling well and purchases cold medicine, $5, and soup, $3, at a grocery store. He mistakenly uses his HSA Debit Card for
the entire purchase price of $8. The next day, John realized that $3 of his bill, from the previous day, is not considered a
qualified medical expense. On 07-01-10, John needs to buy a pain reliever, $3. He pays this bill out of pocket, and keeps his
receipt to "replace" the non-qualified medical expense that he paid for, with his HSA debit card, on 03-01-10.
Q: If I participate in an HSA, can I still keep my Health FSA?
A: You can participate in an HSA and a Limited Purpose Health FSA that only covers Vision and Dental if such has been
set up by your employer. However, since vision and dental expenses are qualified expenses under an HSA,
you cannot reimburse yourself from an HSA and a limited purpose FSA for the same expense.
Q: Do I need to provide receipts to show proof of an eligible medical expense in order to distribute funds from my HSA?
A: With an HSA you are not required to submit receipts in order to withdraw funds from your HSA. However, you should keep
your receipts for your records to prove funds were issued for eligible medical expenses. We recommend keeping your
receipts with your tax documents for the appropriate year.
To make your record keeping easier, your online account allows you to upload receipts for safe keeping. You can even upload
your receipts to specific transactions! The documents that you upload will be available for viewing for three years. After
the three year period, we will archive your documents. If you need access after they have been archived, we can provide those
to you for. A researching fee of $2 per copy will apply. See Uploading Documents to My Account
for detailed instructions.
Q: How do I upload documents to my online account?
A: Please see, Uploading Documents to Your Online Account, for detailed instructions.
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Investments
Q: When can I invest the money in my HSA?
A: Your HSA funds are invested in a money market fund. Interest is deposited into your account each month. For
funds above the minimum balance of $2,500, you may choose from any of our investment options.
Q: Where can I invest the money in my HSA?
A: American Fidelity Health Services Administration provides a strong offering of no load mutual funds that cross all investment risk tolerances such as American Funds, AIM, Vanguard and Morgan Stanley. You pick the mutual fund that best suits your needs and risk tolerance from our carefully monitored list.
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Tax Issues
(The following answers are general in nature. Please consult your tax advisor for specific information on your tax requirements.)
Q: Are distributions from an HSA taxable?
A: If the HSA funds are used for qualified medical expenses, the funds are not taxable. Income taxes and
a 10% additional tax penalty will apply if funds are distributed for non-qualified medical expenses.
Q: What if I use my HSA money for non-qualified expenses?
A: Income taxes and a 10% additional tax penalty will apply to funds distributed for non-qualified medical expenses. Be sure to
always check with your accountant or the IRS to ensure accuracy.
Note – if you are over age 65, the 10% additional tax will not apply to distributions made for non-qualified expenses. Income taxes still apply.
Q: Is there as maximum balance that may be accumulated in my HSA?
A: No, there is no maximum balance on an HSA. There is a maximum contribution amount per year. Please see below for recent year
limitations. Amounts vary year to year.
| Year |
Individual Coverage |
Family Coverage |
| 2010/2011 |
$3,050 |
$6,150 |
|
If you are 55 – 65 years old (65 and older if not enrolled in Medicare) you are eligible to contribute a catch up
contribution of $1000 per year.
Q: What forms are required on an HSA when I file my income taxes?
A: An HSA account holder is required to complete Form 8889 and file it as an attachment to his or her income taxes. This
form can only be filed with Form 1040. It cannot be filed with 1040EZ or 1040A.
If an account holder has excess contributions, he or she must report those excess contributions on
Form 5329 (Additional Taxes
on Qualified Plans) which is also filed as an attachment to Form 1040. IRS Publication 969
provides general HSA reporting instructions.
Q: What documents will I receive from the provider of my HSA?
A: Trustees and custodians of HSAs must report account contributions on Form 5498-SA
and account distributions on Form 1099-SA and file it with the IRS. The 1099-SA
will be mailed to you by January 31 and Form 5498-SA will be mailed to you by May 31. A copy of each form is mailed to you as information purpose
only and is not required to be filed with your income taxes unless instructed otherwise.
Form 5498-SA is not required to be filed if a total distribution was made from the account and no contributions
were made to the HSA during the year. Form 1099-SA is not required if no distributions were made.
Q: Can a person file the HSA Form 8889 with their 1040EZ or 1040A?
A: No, not at this time and there are no plans to do so in the near future.
Q: Is there an IRS approved list of medical expenses that I can spend
my tax free Health Savings Accounts funds on?
A: Yes, there is a list of allowable expenses published by the U.S. Treasury Department,
actually the Internal Revenue Service, referred to as the '213 (d)' list, since it appears
in IRS regulation 213 (d). You can also refer to Publication 502. In general, you can spend tax-free from
your Health Savings Account on all medical, dental (including braces for your children), vision expenses, chiropractic visits, etc.
See our listing of HSA Eligible Expenses.
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Employers
Q: Can HSAs be combined with other employer-sponsored health plans like Flexible Spending Accounts (FSA),
Health Reimbursement Arrangements (HRA) or Cafeteria Benefit Plans (Sec 125 plans)?
A: Yes, subject to certain requirements, see Flexible Spending for more details. In many cases this may be the best way to offer HSAs on a group level because it helps avoid
the administrative issues. American Fidelity Assurance Company and American Fidelity Health Services Administration can offer that service.
Q: May the employer make an HSA contribution directly to employee's account?
A: Yes. Both employee and employer may make contributions to an HSA. Once funds are deposited in an HSA, the funds
become the employee’s. An employer may chose to contribute a certain amount, per year, to an employee’s HSA.
Q: Can the contribution be salary deducted?
A: Yes, this is called an employee contribution.
Q: How are the HSA contributions reported on Form W2?
A: : Tax qualified employer contributions are reported in box 12 of Form W2 with code W. For this purpose, employer
contributions include all contributions made through a cafeteria plan – even pre-tax
salary reductions. Employer contributions to an HSA that are not excludable from the income of the employee must also
be reported in Boxes 1, 3, and 5 of the W-2.
Q: What happens to HSA funds when an employee is no longer covered by the qualifying high
deductible health plan, leaves the company or turns age 65?
A: The HSA is owned by the employee so as such, the funds remain in the account. The employee can choose to use the funds for
qualified medical expenses or save the funds for future medical expenses.
Q: Why choose American Fidelity Health Services Administration?
A: We will be your custodian and administrator no matter which insurance provider you choose. Accessing
your fund is easy through a debit card, online payment request submission and downloadable HSA Distribution Form. We
also offer online access to account information 24/7, where account balance, recent transactions, and distribution requests can be viewed.
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