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| HSA information updated for tax year 2007. |
What is a Health Savings Account?
A Health Savings Account (HSA) is a tax-exempt trust
or custodial account established exclusively for the purpose of
paying qualified medical expenses for you and your family.
Am I Eligible for an HSA?
You are eligible to make or receive an HSA regular contribution
if, with respect to any month, you:
- Are covered under a high-deductible health plan (HDHP) on the
first day of such month;
- Are not covered under another type of health plan that is not
an HDHP (with certain exceptions for plans providing certain limited
types of coverage);
- Are not entitled to benefits under Medicare (generally, have
not attained age 65); and
- May not be claimed as a dependent on another individual’s
tax return.
What is an HDHP?
An HDHP is a plan with an annual deductible off at least $1,100
for individual coverage or $2,200 for family coverage. These amounts
are subject to cost-of-living adjustments (COLAs).
Are There Other Requirements for the HDHP?
Yes. For HSA purposes, the HDHP must limit out-of-pocket expenses.
For 2008, the maximum out-of-pocket expenses, which include money
applied to your deductible and your coinsurance for covered charges,
must be no more than $5,600 for individual coverage and no more
than $11,200 for family coverage. These amounts are subject to COLAs.
How is an HSA Established?
An HSA is established by you in much the same way that you establish
an IRA—with a qualified trustee or custodian.
Who Can Contribute to My HSA?
If you meet the eligibility requirements for an HSA, you, your employer,
and your family members may contribute to your HSA. This is true
whether you are self-employed or unemployed.
How Much Can I Contribute to My HSA?
Individuals may contribute up to $2,900
to an HSA, while those with family coverage may contribute up to
$5,800. Unlike previous years, contributions are not limited by
the amount of the deductible for your HDHP. As long as you are covered
by a qualifying plan, you may contribute up to the maximum amount.
Additionally, a “catch-up” contribution is available
for eligible individuals who have attained age 55 by the end of
their taxable year but have not attained age 65. The chart that
follows shows these additional amounts.
| Tax Year |
Catch-up Amount |
| 2008 |
$900 |
| 2009 |
$1,000 |
What Are the Federal Tax Benefits of an HSA?
Contributions to an HSA are fully deductible, the earnings grow
tax deferred, and distributions for qualified medical expenses are
tax free. Consult with your tax or legal professional for guidance.
How Do I Claim the Federal Tax Deduction for My HSA Contribution?
Contributions made by you, and by family members on your behalf,
which do not exceed the maximum annual contribution amount, are
deductible by you when determining your adjusted gross income for
your federal income tax return. You cannot deduct employer contributions,
and these contributions will not count as wages for federal income
tax purposes.
When is the Contribution Deadline for Funding an HSA?
Regular and catch-up HSA contributions can be made at any time for
a taxable year up to and including your federal income tax return
due date, excluding extensions, for that taxable year. The due date
for most taxpayers is April 15.
How Are HSA Distributions Taxed?
Distributions from your HSA used exclusively to pay for qualified
medical expenses of you, your spouse, or your dependents are excludable
from gross income. Any other distributions are includable in your
gross income and are subject to an additional 10 percent tax on
the amount includable, except in the case of distributions made
after your death, your disability, or your attainment of age 65.
HSA distributions that are not rolled over will be taxed as income
in the year distributed, unless they are used for qualified medical
expenses. HSA custodians/trustees are not required to determine
whether HSA distributions are used for qualified medical expenses.
What Happens to My HSA in the Event of My Death?
Spouse Beneficiary
If your spouse is the beneficiary of your HSA, the HSA becomes his/her
HSA.
Nonspouse Beneficiary
If your beneficiary is not your spouse, the HSA ceases to be an
HSA as of the date of your death and will be included in the beneficiary’s
gross income for the year of death.
This web page is intended to provide general information
concerning federal tax laws governing HSAs. It is not intended to
provide legal advice or to be a detailed explanation of the rules
or how such rules may apply to your individual circumstances. For
specific information, you are encouraged to consult your tax or
legal professional. The IRS’s web site, www.irs.gov, may also
provide helpful information.
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