Answer Center > Tax Benefits and Resources

An HSA is the only vehicle in the IRS code that has triple tax savings. Contributions are tax-deductible, allowing you to take a top-line deduction, and earnings grow tax-free. For 2007, if you had self-only HDHP coverage, your contribution maximum was $2,850; $5,650 if family HDHP. For 2008, the limits increase to $2,900 for an individual and $5,800 for a family. If the money is used for a qualified medical expense, it is a tax-free distribution. Once you reach 65, you may also take a distribution for a non-medical expense and pay regular income tax on the money. This is the same as taking a distribution from a 401k or an IRA.

For 2007 and forward, your maximum annual HSA contribution is based on the statutory limit for your type of coverage. For 2008, if you have self-only HDHP coverage, your maximum contribution is $2,900; $5,800 if family HDHP, regardless of your HDHP deductible. If you are age 55 or older, you can also make additional "catch-up" contributions (see below).

Contributions to an HSA much be made in cash or its equivalent.

To be eligible to contribute, you must be covered by a qualifying High Deductible Health Plan (HDHP), cannot be on Medicare, cannot be covered by other health insurance that is not an HDHP (excluding accident plans or dental plans), and cannot be eligible to be claimed as a dependent on another person's tax return

The most you can put into your account for 2008 is $2,900 if you have single coverage and $5,800 for family coverage. These amounts will be increased for inflation in future years.

No, you can contribute in a lump sum or in any amounts or frequency you wish. However, your account trustee/custodian (bank, credit union, insurer, etc.) can impose minimum deposit and balance requirements.

Your eligibility to contribute to an HSA is determined by the effective date of your HDHP coverage. Your annual contribution depends your HDHP coverage. If you are not covered on December 1, your contribution depends on the number of months of HDHP coverage you have during the year (technically, the months where you have HDHP coverage on the first day of the month). For 2007 and forward, if you are covered on December 1, you are treated as an eligible individual for the entire year. However – if you cease to be an eligible individual during 2008, the excess over the pro rated contribution is included in income and subject to a 10 percent additional tax. The amount you can contribute is not determined by the date you establish your account. However, medical expenses incurred before the date your HSA is established cannot be reimbursed from the account.

You, your employer, or both can make contributions to your HSA. All contributions are aggregated to determine whether you have contributed the maximum allowed. If your employer contributes some of the money, you can make up the difference.

Your personal contributions offer you an "above-the-line" deduction. An "above-the-line" deduction allows you to reduce your taxable income by the amount you contribute to your HSA. You do not have to itemize your deductions to benefit. Contributions can also be made to your HSA by others (e.g., relatives). However, you receive the benefit of the tax deduction.

Unlike many other tax breaks, there aren't any income limits. Anyone who buys a qualified high-deductible policy can open an HSA.

HSA contributions are tax deductible, regardless of the source of your income.

No. Your HSA contributions won't affect your IRA limits; it's just another tax-deferred way to save for retirement, with the added advantage being that you can withdraw funds tax-free if they are used to pay for medical expenses.

You can fund your HSA with a one-time rollover from your IRA. If you can afford to fully fund your HSA without using a rollover from your IRA, you will get a full tax-deduction for your HSA contribution. However, if you do not have enough money available to fully fund your account, moving money from your IRA to your HSA is a smart move. It will protect this money from ever being taxed if it is used to pay qualified medical expenses.

If your employer makes a contribution to your HSA, the contribution is not taxable to you the employee (excluded from income).

If your employer offers a "salary reduction" plan (also known as a "Section 125 plan" or "cafeteria plan"), you (the employee) can make contributions to your HSA on a pre-tax basis (i.e., before income taxes and FICA taxes). If you can do so, you cannot also take the "above-the-line" deduction on your personal income taxes.

You may be able to claim the medical expense deduction even if you contribute to an HSA. However, you cannot include any contribution to the HSA or any distribution from the HSA, including distributions taken for non-medical expenses, in the calculation for claiming the itemized deduction for medical expenses.

Yes, individuals 55 and older who are covered by an HDHP can make additional catch-up contributions each year until they enroll in Medicare. The additional "catch-up" contributions to HSA allowed are as follows:

• 2007 - $800
• 2008 - $900
• 2009 and after - $1,000

If you had HDHP coverage for the full year, you can make the full catch-up contribution regardless of when your 55th birthday falls during the year. If you did not have HDHP coverage for the full year, you must pro-rate your "catch-up" contribution for the number of full months you were "eligible", i.e., had HDHP coverage. However, if you are covered on December 1, you are treated as an eligible individual for the entire year and get the full contribution.

Yes, if both spouses are eligible individuals and both spouses have established an HSA in their name. If only one spouse has an HSA in their name, only that spouse can make a "catch-up" contribution.

For 2007 and forward, each spouse is eligible to contribute to an HSA in their own name, up to the statutory limit ($2,900 for 2008). (The catch up contributions are in addition to these limits.)

The following examples describe how much can be contributed under varying circumstances. Assume that neither spouse qualifies for "catch-up contributions".

Example 1: Husband and wife have family HDHP coverage with a $5,000 deductible. Husband has no other coverage. Wife also has self-only coverage with a $200 deductible. Wife, who has coverage under a low-deductible plan, is not eligible and cannot contribute to an HSA. Husband may contribute $5,800 to an HSA.

Example 2: Husband and wife have family HDHP coverage with a $5,000 deductible. Husband has no other coverage. Wife also has self-only HDHP coverage with a $2,200 deductible. Both husband and wife are eligible individuals. Husband and wife are treated as having only family coverage. The combined HSA contribution by husband and wife cannot exceed $5,800, to be divided between them by agreement.

Example 3: Husband and wife have family HDHP coverage with a $5,000 deductible. Husband has no other coverage. Wife also has family HDHP coverage with a $3,000 deductible. Both husband and wife are eligible individuals. The maximum combined HSA contribution by husband and wife is $5,800, to be divided between them by agreement.

Example 4: Husband and wife have family HDHP coverage with a $5,000 deductible. Husband has no other coverage. Wife also has family coverage with a $200 deductible. Husband and wife are treated as having family coverage with the lowest annual deductible ($200). Neither husband nor wife is an eligible individual and neither may contribute to an HSA.

Example 5: Husband and wife have family HDHP coverage with a $5,000 deductible. Husband has no other coverage. Wife also is enrolled in Medicare. Wife is not an eligible individual and cannot contribute to an HSA. Husband may contribute $5,800 to an HSA.

Tax filing status does not affect your contribution.

Yes, you are still eligible for an HSA. Your dependent's non-HDHP coverage does not affect your eligibility, even if they are covered by your HDHP. You can contribute up to the statutory limit ($5,650) to your HSA.

No. Self-employed persons may not contribute to an HSA on a pre-tax basis and may not take the amount of their HSA contribution as a deduction for SECA purposes. However, they may contribute to an HSA with after-tax dollars and take the above-the-line deduction.

Yes, as long as the contribution is made into an account of an eligible individual.

If you elect o make HSA contributions under a cafeteria plan, you may start or stop the election or increase or decrease the amount of your HSA contribution at any time, as long as the change is effective prospectively.

Contributions for any taxable year can be made in one or more payments, at any time prior to the deadline, without extensions, for filing your federal income tax return for that year, but not before the beginning of that year. For calendar year taxpayers, this deadline for contributions is generally April 15 following the year for which the contributions are made.

An "excess contribution" (a contribution made by you or your employer that exceeds the amount allowed by law) is not deductible by you or your employer and is included in your gross income if made on your behalf by your employer. An excise tax of 6% for each taxable year is imposed on excess individual and employer contributions.

If the excess contributions for a taxable year and the net income attributable to such excess contributions are paid or distributed to you before the deadline (without extensions) for filing your federal income tax return for the taxable year, then the net income from the excess contributions are included in your gross income for the taxable year in which the distribution is received. However, the excise tax would not be imposed on the excess contributions nor would the distribution of the excess contributions be taxed. Allowable rollover contributions do not count in determining whether an excess contribution has been made.

The account holder (you) controls all decisions over how the money is invested. You can also choose not to invest your funds.

Yes, you can invest the funds in your HSA. The same types of investments permitted for IRAs are allowed for HSAs, including stocks, bonds, mutual funds, and certificates of deposit.

Investment options vary by administrator, and include savings accounts, stocks, bonds, and mutual funds. If you would like help choosing an HSA provider, visit our Open an HSA page, or if you would like to see a list of financial institutions we recommend, click here.

If such fees are paid directly to your HSA trustee or custodian by you or your employer, the fees are not considered contributions to your HSA and do not count toward the maximum annual contribution limit. If, instead, you authorize your HSA trustee or custodian to withdraw payment for such fees from your HSA, the amount withdrawn does not increase the maximum annual contribution limit. For example, if your maximum annual contribution limit is $2,900 and a $50 administration fee is withdrawn from you HSA, your annual contribution limit remains at $2,900. It does not increase to $2,950.

No, it is your sole responsibility to keep track of the amounts deposited and spent from your account, just like a normal savings or checking account.

No. You may not borrow against it or pledge the funds in it. For more information on prohibited activities, see Section 4975 of the Internal Revenue Code.

Any portion of your HSA that you pledge as security for a loan will be treated as a distribution for the year the pledge is made. The amount pledged is includable in your gross income and a 10% premature distribution penalty tax on the pledged amount may also be imposed.

You cannot roll the HSA funds over into an IRA. They will stay in the HSA or be rolled into another HSA.

An individual can now make a one-time, irrevocable transfer from an IRA to an HSA. The transfer does count against the annual contribution maximum and requires the individual to be in an HSA-eligible HDHP for a period of 12 months after this transfer is complete.

Yes, if you do so within 60 days of withdrawing the funds from the Archer MSA.

If your spouse is the named beneficiary of your HSA, your HSA becomes the HSA of your spouse upon your death. The surviving spouse is subject to income tax only to the extent distributions from the HSA are not used for qualified medical expenses. If your HSA passes to a person other than your surviving spouse, the HSA ceases to be an HSA as of the date of your death, and the beneficiary is required to include the fair market value of the HSA assets as of the date of your death in his or her gross income. The includable amount is reduced by any payments from the HSA for your qualified medical expenses, if such payments are made within one year after your death. If you have not made a valid beneficiary designation, your HSA ceases to be an HSA upon your death and the fair market value of the assets in your HSA, as of the date of death, is includable in your gross income for the year of death. If you provide that it goes to your estate or other entity, the value of the HSA at death is income to the estate or other entity.

If you become permanently disabled, you may withdraw your funds at any time, without penalty. Withdrawals will be subject to income tax at that time.

Distributions from an HSA used exclusively to pay for the qualified medical expenses of you or your spouse or eligible dependents are generally excludable from gross income. The amount of any distribution not used exclusively for such qualified medical expenses is includable in your gross income and may be subject to an additional 10% premature distribution penalty tax on the amount includable. (This 10% penalty tax does not apply to distributions made after your death, disability, or attainment of age 65.) In addition, distributions made for expenses that are reimbursed by another health plan are includable in your gross income, whether or not the other health plan is a high-deductible health plan.

In January you should receive form 1099-SA, which will indicate the total distributions you took from your account during the previous year, and form 1099-INT or other similar form indicating your earnings on the account during the year. Distributions are not taxed if you spent the money on qualified medical expenses. Growth on the account is not taxed unless there is distribution of this money for non-qualified purposes. In May you should receive form 5498, which will indicate your total contributions to the account during the previous year. This form is not sent out until May because you have until April 15 to fund your account from the previous year.

No. It is your responsibility to keep track of your own qualified-medical expenses. Individual contributions and taxable distributions should be reported on form 1040.

No. There is no time limit for when you can reimburse yourself for your health care expenses. You should keep legible receipts of your medical expenses, and records of when you do reimburse yourself.

That is what is referred to as an "erroneous distribution". The account holder can repay the mistaken distribution by April 15 of the following year with no penalty if there is reasonable evidence that the original distribution was made in good faith, that it was a qualified. The repayment is classified as an "adjusted entry," not a contribution; therefore it would not count "twice" toward the yearly maximum.

It is your responsibility to keep track of your deposits and expenditures and keep all of your receipts. If you run out of HSA funds (and therefore need to use your HDHP), you may need to send those receipts to your insurer.

No, you may change administrators at any time, although some administrators may charge a fee to open or close your account.

Yes. The IRS places few limitations on the type of investments allowable for HSAs. Contrary to what most bankers and brokers will tell you, investment vehicles available to you for your HSA funds do include real estate, private notes and mortgages, limited partnerships, and many other possibilities. Investments NOT permitted include life insurance contracts, collectibles including art, antiques, metals, gems, stamps, alcoholic beverages or other tangible property as specified in section 408(m) of the Tax Code.

Paying for your medical expenses as they occur and reimbursing yourself in later years allows the HSA time to grow tax-deferred. You must retain records of medical expenses not reimbursed so they can be reimbursed in subsequent years, but by using this strategy your account can grow significantly higher over time. Making your deposit as early in the year as possible will also help maximize the tax-deferred growth of your funds. Use our Future Value Calculator to estimate the growth of your HSA.

Funds deposited into your HSA remain in your account and automatically roll over from one year to the next. You may continue to use the HSA funds for qualified medical expenses. You are no longer eligible to contribute to an HSA for months that you are not an eligible individual because you are not covered by an HDHP. If you have coverage by an HDHP for less than a year, the annual maximum contribution is reduced; if you made a contribution to your HSA for the year based on a full year's coverage by the HDHP, you will need to withdraw some of the contribution to avoid the tax on excess HSA contributions. If you regain HDHP coverage at a later date, you can begin making contributions to your HSA again.

The unused balance in a Health Savings Account automatically rolls over year after year. You won't lose your money if you don't spend it within the year.

You can continue to use your account tax-free for out-of-pocket health expenses. When you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or "Medigap" policy. Once you turn age 65, you can also use your account to pay for things other than medical expenses. If used for other expenses, the amount withdrawn will be taxable as income but will not be subject to any other penalties. Individuals under age 65 who use their accounts for non-medical expenses must pay income tax and a 10% penalty on the amount withdrawn.

No, you do not own your employees' HSAs. The employee fully owns the contributions to the account as soon as they are deposited, just as with a personal checking or savings account to which you would deposit their compensation.

Employee contributions can be made to HSAs on either after-tax or pre-tax basis. If made on an after-tax basis they should be counted as an above-the-line deduction on their tax return, effectively making their contributions tax-free. If they want to make the contribution pre-tax it can be done through a Section 125 (also called a "salary reduction" or "cafeteria plan").

As much or as little as you want (while staying below the legal limit on annual contributions to the account).

No, you can contribute in a lump sum or in any amounts or frequency you wish. However, keep in mind that the funds belong to the employee after they are deposited.

Employer contributions must be "comparable", that is they must be in the same dollar amount or same percentage of the employee's deductible for all employees in the same "class". You can vary the level of contributions for "full-time" vs. "part-time" employees, and employees with "self-only" coverage vs. "family coverage". You do not need to consider employees who do not have HDHP coverage as they are not eligible for HSA contributions.

Section 125 plans (also known as "salary reduction" or "cafeteria" plans) must meet a different set of rules. Under these plans, contributions (both from employer and/or employee) must meet "non-discrimination" rules. These rules require the employer to ensure that contributions do not favor higher compensated employees.

Yes, but your company can only offer "matching" contributions through a Section 125 plan. Remember that the non-discrimination rules still apply.

Your company can make pre-tax contributions to your employees' HSAs as long as you do so for all eligible employees. However, the comparability rules apply. If you have a Section 125 plan, then the non-discrimination rules apply.

Owners and officers with greater than 2% share of a Subchapter S corporation cannot make pre-tax contributions to their HSAs through the company by salary reduction. In addition, any contributions made to their HSAs by the corporation are taxable as income. However, they can make their own personal contributions to their HSAs and take the "above-the-line" deduction on their personal income taxes.

Partners in a partnership or LLC cannot make pre-tax contributions to their HSAs through the partnership by salary reduction. However, they can make their own personal contributions to their HSAs and take the "above-the-line" deduction on their personal income taxes.

No. Self-employed persons may not contribute to an HSA on a pre-tax basis and may not take the amount of their HSA contribution as a deduction for SECA purposes. However, they may contribute to an HSA with after-tax dollars and take the above-the-line deduction.

If a high deductible plan is offered as part of a cafeteria plan, it can be used to establish your eligibility for an HSA. (A cafeteria plan or flexible benefit plan is an employee benefit plan that permits employees to choose from a variety of benefits, including health and accident insurance cash, tax advantages and retirement plan contributions.)

If you elect to make HSA contributions under a cafeteria plan, you may start or stop the election or increase or decrease the amount of your HSA contribution at any time, as long as the change is effective prospectively.

Employer contributions to an employee's HSA are excludable from the employee's gross income, up to the maximum contribution limit for that employee. Although the employee cannot deduct the employer's HSA contributions, the contributions are not taxable to the employee nor are they subject to withholding from wages fro income tax or other employment taxes. HSA contributions by employers are considered a type of benefit, and are therefore, tax-deductible for the employer.

A group can offer health savings accounts (HSAs) along side a healthcare flexible spending account (FSA) as long as the group has a "limited purpose provision" added to their healthcare FSA plan document. This can be done by most healthcare FSA administrators. The "limited purpose provision" allows employees with a healthcare FSA to use their FSA funds "first dollar" for dental and vision – anything non medical, but the employee must use their HSA funds up to their annual deductible for medical before they can use their healthcare FSA funds for medical. This rule also applies to employees whose spouses have an FSA with their employer even if the HSA account holder's employer does not offer a healthcare FSA. The limited purpose provision does not apply to those employees who do not have an HSA. Without the limited purpose provision added to the healthcare FSA plan document, an employee with a healthcare FSA cannot have an HSA. A dependent care FSA is not affected by the addition of an HSA.

IRS Publication 969 covers the Healthcare FSA/HSA stacking rules and "limited purpose provisions" on a high level. Please see "Other Coverage" under the HSA subhead at http://www.irs.gov/publications/p969/ar02.html#d0e172

A company cannot contribute to the HSA account of individuals owning 2% or more of the company, pay administrative fees on their behalf and write it off as a business expense (as they could do for contributions to other employees). The 2% + owners or Partners themselves can have HSA compatible coverage and establish HSAs. They would need to contribute with their own after-tax dollars. Because the 2%+ owners or Partners are not receiving an employer contribution, they can choose to fund their HSA in anyway they see fit and are not limited to the comparability requirements. At the end of the year, the Owners/Partners would deduct their HSA contributions from their individual tax return.

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