Health Savings Account (HSA)

Health Savings Account (HSA)Health Savings Account (HSA)Health care is an important part of an employee benefits package, albeit an expensive one. With health care costs rising, businesses are looking for alternatives to the customary managed care plans. One of the options available is a Health Savings Account (HSA). What is an HSA? An HSA is a type of consumer-driven health care account. HSAs are a type of account that allows individuals to save for qualified medical expenses tax-free. They were modeled after Archer MSAs, brought about when President Bush signed in the Medicare Modernization Act in 2003. HSAs are open to anyone who is enrolled in a qualified High Deductible Health Plan (HDHP). Account funds are contributed into the account tax-free. Money in the HSA is allowed to accumulate in the account and earn interest. When the account holder has a qualified medical expense, that person would withdraw the money tax-free for those expenses. Some types of qualified medical ex penses include deductibles, co-insurance costs, and copays. The money stays in the account from year to year and just keeps rolling over. HSAs are owned by the individual, not by employers. Any money contributed into the account, whether by employer or employee, is the employees to use for their qualified medical expenses. Who is Eligible for an HSA? Employers who wish to platzdeckchen up an HSA for their employees must also enroll their employees in anHDHP. To qualify for an HSA, employees Must have coverage through an HDHPNot have coverage through any other health insuranceNot have coverage through MedicareCannot be claimed as a dependent on anyones tax return Anyone can qualify for an HSA regardless of income. There are no income tiefpunkts or maximums to sign up for an HSA. Who is Not Eligible for an HSA? Employees that have any of the following cannot sign up for an HSA. MedicareTricareFlexible Spending Account (FSA)Health Reimbursement Account (HRA) There are some exce ptions. Employees can have an HSA with an HRA or FSA under certain conditions. If the HRA and FSA are used only for vision, dental or preventive care benefits and not for medical benefits, its fine to use either alongside an HSA.HRAs and FSAs can be used for medical accounts ONLY after the minimum annual deductible has been met for the HDHP.An HRA that is set up to fund health care costs after retirement can be used along with an existing HSA.If an existing HRA is already established and an employeeagrees to forgo health care reimbursements during the period when theres a contribution to their HSA, both would be allowed to exist at once. Who Can Contribute to the HSA? HSA contributions can be made by the employer, employee, or through a shared contribution through both parties. A contribution can also be made by a third party on behalf of the employee. Employees can also make a one-time transfer from their IRA to their HSA. Anyone that is self-employed, a partner or S-Corporati on share are not considered employees of a company and cannot receive an employer contribution. They may open up an HSA, but it would have to be self-funded. If an employer contributes to the HSA, they can do it in a couple of ways Contributions can be made through salary reductions through a cafeteria section 125 plan on a pre-tax basis.An employer can automatically make contributions through a cafeteria plan on behalf of the employee. Certain rules do apply, though. If the employer makes the contribution or any portion of the contribution to the HSA, then that portion is not taxable to the employee as income or wages. Additionally, contributions must stop once an individual is enrolled in any type of Medicare plan. Remember that once money is contributed by an employer into an employees account, any money is deemed the employees, even if they leave the company on a voluntary or involuntary basis. The individual owns the account and decides how the money is allocated to medical exp enses and invested, while employed with the company, and once the individual no longer works for the company. Can the Money in the HSA be Used for Anything Else? The amount contributed to the HSA must be used for qualified expenses related to the HDHP. Receipts for expenses should be kept in a safe place. If an employee must withdraw HSA money, it is similar to the penalties for withdrawing from an IRA before its time limit. The withdrawn amount is subject to income tax, plus a 10% penalty. Compare an FSA with an HSA. HSA and HDHP Contribution Limits The following amounts are adjusted for inflation annually. HDHP minimum deductible2019$1,100 (individual coverage)$2,700 (family coverage) HDHP annual out-of-pocket (including deductibles and co-pays) cannot exceed2019$6,750 (individual coverage)$13,500 (family coverage) HSA Maximum Contribution Amount2019$3,500 (individual coverage)$7,000 (family coverage) Catch-Up Contributions (age 55 or older)2019$1,000 Any contribution made to an HSA that is in excess of the maximum contribution level must be withdrawn, otherwise, it is subject to an excise tax. If the HSA amount for the year was not reached, there are no penalties. All contributions are pro-rated for the year based on how many months the employee is in the plan.