Health Savings Accounts (HSA)

What is it?
An HSA is an alternative to traditional medical plans and is designed to allow employees to put money aside for future medical expenses, while receiving tax benefits. HSA account funds are used for reimbursement of qualifying medical expenses for the employee, spouse, or dependent children.

An HSA provides triple tax savings, 1) tax deductions when contributing to the account, 2) tax-free earnings on the savings, and 3) tax-free withdrawals for qualified medical expenses.

Who is eligible?
To qualify for contributions to an HSA an individual must:

• Have coverage under a qualifying High Deductible Health Plan (HDHP)
• Not be covered under another health plan (including Medicare) unless an HDHP
• Not be able to be claimed as a dependent on someone else’s tax return

How are contributions made?
Contributions to an HSA account can be made by the employee, the employer, or a third party. Maximum contribution amounts are determined annually by the IRS. 2011 maximum contributions amounts are $3,050 single and $6,150 family. Catch-up contributions of $1,000 can be made by individuals 55 and older. Like an FSA, employers must follow certain non-discrimination rules for making contributions.

How are distributions made?
It is the individual’s responsibility to maintain receipts, etc. as proof of reimbursement for qualified expenses. Most HSAs are accessed through a debit card and/or checks. Distributions are reported on the individual’s tax return. EFFECTIVE 1/1/11, reimbursements for over-the-counter drugs and medications require a prescription (insulin is exempt).

Additional information regarding HSAs can be obtained here.

Our expert staff can assist you with setting up a high deductible health plan (HDHP) and related Health Savings Accounts that meets the needs of your employees and organization.