An HSA works in conjunction with high deductible health insurance.
Your HSA dollars can be used to help pay the health insurance deductible and any qualified medical expenses, including those not covered by the health insurance, like dental and vision care.
Any funds you withdraw for non-qualified medical expenses will be taxed at your income tax rate, plus 10% tax penalty.
Once you meet your calendar-year deductible, the health insurance pays remaining covered expenses in accordance with the terms and conditions of your particular plan. Some plans pay 100% of covered expenses after the calendar-year deductible is met.
You must be:
1) Covered by qualified high deductible health insurance plan;
2) Not covered under other health insurance;
3) Not enrolled in Medicare; and
4) Not another person's dependent.
Other health insurance does not include coverage for the following: accidents, dental care, disability, long-term care, and vision care. Workers’ compensation, specified disease, and fixed indemnity coverage is permitted.
Federal law states that annual contribution limits are $3,250 for singles/$6,450 for families for 2013 and $3,300 for singles/$6,550 for families for 2014. Individuals aged 55+ may contribute an additional $1,000 for each tax year.
Yes. These networks are very often part of the health insurance plan, and they provide discounts on health care. The discounts apply to all care — even prior to meeting the health insurance deductible. So, your HSAs savings go further.
No, this would be a nonmedical withdrawal, subject to taxes and penalty.
No penalty or taxes will apply if the money is withdrawn to pay premiums for:
1) Qualified long-term care insurance; or
2) Health insurance while you are receiving federal or state unemployment compensation; or
3) Continuation of coverage plans, like COBRA, required under any federal law; or
4) Medicare premiums.
There are three major tax advantages to your HSA.
1) Cash contributions to an HSA are 100% deductible from your federal gross income (within legal limits).
2) Interest earnings accumulate tax-deferred.
3) Withdrawals from an HSA for “qualified medical expenses” are free from federal income tax.
A qualified medical expense is one for medical care as defined by Internal Revenue Code Section 213(d). The expenses must be primarily to alleviate or prevent a physical or mental defect or illness, including dental and vision. Most expenses for medical care will fall under IRC Section 213(d).
However, some expenses do not qualify.
A few examples are:
Surgery for purely cosmetic reasons
Health club dues
Illegal operations or treatment
Toothpaste, toiletries, and cosmetics
HSA money cannot generally be used to pay your insurance premiums. See exceptions.
*See IRS Publications 502 (“Medical and Dental Expenses”) and 969 (“Health Savings Accounts and Other Tax-Favored Health Plans”) for more information.
Under the law, yes, but make sure your financial institution accepts lump-sum deposits. You may also be required to continue minimum monthly deposits. Lump-sum deposits may not exceed the maximum annual contribution limit.
Yes, the tax law requires an annual Cost of Living Adjustment (COLA) based on changes in the Consumer Price Index. This calculation, rounded to the nearest $50 increment, affects deductible limits, maximum out-of-pocket amounts, and the maximum annual HSA contribution limits.
Health insurance deductibles may change by the COLA each year.
Your HSA will be treated as your surviving spouse’s HSA, but only if your spouse is the named beneficiary. If there is no surviving spouse or your spouse is not the beneficiary, then the savings account will cease to be an HSA and will be included in the federal gross income of your estate or named beneficiary.
Once your account is open, a deposit has been made to your account and funds are available, you can start using your HSA. You are 100 percent vested as soon as the funds are deposited and you have total control over the funds.
You are eligible to receive tax-free reimbursement for qualified health expenses not covered by your insurance as defined by Section 213(d) of the Tax Code. A list of these expenses is available on the IRS Web Site, www.irs.gov. HSA distributions used for any purpose other than the qualified medical expenses listed will be taxable, and the appropriate tax rules will apply.
If an individual is age 65 or older, regardless of whether the individual has been enrolled in Medicare, there is no penalty to withdraw funds from the HSA. As always, normal income taxes will apply if the distribution is not used for unreimbursed medical expenses (expenses not covered by the medical plan).
The near-term impact on HSAs is limited to (1) an increased penalty on HSA distributions that are not used for qualified medical expenses for those under the age of 65 from 10 to 20 percent and (2) the exclusion of most over-the-counter medications as a qualified medical expense unless they are prescribed by a physician.
Nonmedical withdrawals from your health savings account are taxable income and subject to a 10% tax penalty in 2010 and a 20% tax penalty as of January 1, 2011.
Exception. This tax penalty does not apply if the withdrawal is made after the date you:
1) Attain age 65;
2) Become totally and permanently disabled; or
This site is presented as general information by UnitedHealthcare's Golden Rule Insurance Company, and not as an advertisement of, or solicitation for any health insurance product.