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WHAT ARE HSAs AND WHO CAN HAVE THEM?
CONTRIBUTIONS TO HSAs
DISTRIBUTIONS ACCOUNT HOLDER RESPONSIBILITIES
WHAT ARE HSAs AND WHO CAN HAVE THEM?
Q: What is an HSA and how does it work?
A: An HSA is a tax-advantaged account established to pay for
qualified medical expenses of an accountholder who is covered under a high-deductible
health plan. With money from this account, you pay for healthcare expenses until
your deductible is met. Then, in accordance with the terms of your healthcare
plan, your insurance company pays for covered expenses in excess of your deductible.
Any unused funds are yours to retain in your HSA and accumulate towards your
future healthcare expenses or your retirement.
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Q: Who qualifies for an HSA?
A: An eligible individual is anyone who:
• is covered under a high deductible health plan
(HDHP)
• is not covered by any other health plan that
is not an HDHP
• is not currently entitled to Medicare benefits,
and
• may not be claimed as a dependent on another
person's tax return.
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Q: What is a “high-deductible health
plan” (HDHP)?
A: Generally, an HDHP is a health plan that satisfies certain
requirements with respect to deductibles and out-of-pocket expenses. Specifically,
for self-only coverage, an HDHP has an annual deductible of at least $1,000 and
annual out-of-pocket expenses required to be paid (deductibles, co-payments and
other amounts, but not premiums) not exceeding $5,000 (as indexed). For family
coverage, an HDHP has an annual deductible of at least $2,000 and annual out-of-pocket
expenses required to be paid not exceeding $10,000. Deductibles and annual out-of-pocket
expenses are indexed for inflation on an annual basis. If you are unsure as to
whether your health plan is a “high-deductible health plan”, you
should contact your health insurance provider.
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Q: What kind of other health coverage
makes an individual ineligible for an HSA?
A: Generally, an individual is ineligible for an HSA if the
individual, while covered under an HDHP, is also covered under a health plan
(whether as an individual, spouse, or dependent) that is not an HDHP.
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Q: What other kinds of health coverage
may an individual maintain without losing eligibility for an HSA?
A: An individual does not fail to be eligible for an HSA merely
because, in addition to an HDHP, the individual has coverage for any benefit
provided by “permitted insurance.” Permitted insurance is insurance
under which substantially all of the coverage provided relates to liabilities
incurred under workers' compensation laws, tort liabilities, liabilities relating
to ownership or use of property (e.g., automobile insurance), insurance for a
specified disease or illness, and insurance that pays a fixed amount per day
(or other period) of hospitalization.
In addition to permitted insurance, an individual does not
fail to be eligible for an HSA merely because, in addition to an HDHP, the individual
has coverage (whether provided through insurance or otherwise) for accidents,
disability, dental care, vision care, or long-term care. If a plan that is intended
to be an HDHP is one in which substantially all of the coverage of the plan is
through permitted insurance or other coverage as described in this answer, it
is not an HDHP.
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Q: What can I use the HSA for?
A: The HSA can be used:
• to pay for qualified medical, dental, vision
and prescription drug expenses as defined in IRS Publication 502
• as supplemental income upon retirement at age
65
• for non-qualified expenses; however, the money
withdrawn is taxable and subject to a 10% penalty.
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Q: Are health insurance premiums
qualified medical expenses?
A: Generally, health insurance premiums are not qualified
medical expenses except for the following: qualified long-term care insurance,
COBRA health care continuation coverage, and in the case of an individual who
is entitled to Medicare, Medicare Part A and B, Medicare HMO, and the employee's
share of premiums for employer sponsored health insurance, including premiums
for employer sponsored retiree health insurance, if available. Medigap policies
are not qualified medical expenses.
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CONTRIBUTIONS TO HSAs
Q: Who may contribute to an HSA?
A: Any eligible individual may contribute to an HSA. If an
employee establishes an HSA, that employee, the employee's employer, or both
may contribute to the employee's HSA in a given year.
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Q: How much can I contribute to my HSA?
A: Your annual HSA contribution may not exceed IRS limits
of $2,600 for individual coverage or $5,150 for family coverage. The amount of
your HDHP deductible up to these amounts, as applicable, is the amount you may
contribute to your HSA annually.
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Q: How do I make contributions?
A: Contributions to your Tax Saver HSA will be made by direct
deposit by you through your employer from your payroll.
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Q: How do I make contributions?
A: You can set up contributions through payroll deduction
or set up ad hoc or recurring contributions from a bank account to the HSA through
the Website. Deposit coupons may also be used to mail individual contributions
directly to U.S. Bank.
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Q: What happens when HSA contributions
exceed the maximum amount that may be deducted or excluded from gross income
in a taxable year?
A: Contributions by individuals to an HSA, or if made on behalf
of an individual to an HSA, are not deductible to the extent they exceed the
limits. Contributions by an employer to an HSA for an employee are included in
the gross income of the employee to the extent that they exceed the limits or
if they are made on behalf of an employee who is not an eligible individual.
In addition, if not withdrawn in a timely manner, an annually assessed excise
tax of 6% is imposed on the accountholder for excess individual and employer
contributions.
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Q: What are catch-up contributions for
individuals age 55 or older?
A: For individuals between the ages of 55 and 65, the HSA
contribution limit is increased by $500 in calendar year 2004. This catch-up
amount will increase by $100 annually until it reaches $1,000 in calendar year
2009.
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Q: How are contributions applied to my
HSA?
A: Contributions are fully vested and nonforfeitable.
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Q: Are rollover contributions to HSAs
permitted?
A: Rollover contributions from Archer MSAs and other HSAs
are permitted. Qualifying rollover contributions must be made in cash and are
not subject to annual contribution limits. Rollovers from an IRA, a health reimbursement
arrangement (HRA), or a health flexible spending account (FSA) to an HSA are
not permitted.
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DISTRIBUTIONS ACCOUNT HOLDER RESPONSIBILITIES
Q: When can I receive distributions from
an HSA?
A: You can receive distributions from the HSA at any time.
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Q: What are the “qualified medical
expenses” that are eligible for tax-free distributions?
A: Qualified medical expenses are expenses paid by the accountholder
for diagnosis, cure, mitigation, treatment, or prevention of disease. Examples
of these expenses are prescription drugs, transportation to care providers, qualified
long-term care expenses, and health insurance premiums for individuals eligible
for Medicare (other than premiums for Medigap policies). Such expenses are “qualified
medical expenses” only if they are ineligible for insurance or any other
type of coverage.
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Q: How are distributions from an HSA
taxed?
A: Distributions from an HSA used exclusively to pay for qualified
medical expenses of the accountholder, his or her spouse, or dependents are excludable
from gross income. In general, amounts retained in an HSA can be used for qualified
medical expenses and will be excludable from gross income even if the individual
is not currently eligible for contributions to the HSA.
However, any amount of the distribution not used exclusively
to pay for qualified medical expenses of the accountholder, spouse or dependents
is includable in gross income of the accountholder. Such distributions are subject
to an additional 10% tax on the amount includable, except in the case of distributions
made after the accountholder's death, disability, or attaining age 65.
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Q: How do I pay for medical services?
A: Medical services can be paid for with your special debit
card or HSA checkbook.
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Q: What happens if the HSA has insufficient
funds for payment?
A: Overdraft fees will be assessed for returned checks or
debit card transactions which are rejected.
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Q: Is tax reporting required for an HSA?
A: IRS form 8853 must be completed with your tax return each
year to report total deposits and withdrawals from your account. You do not have
to itemize to complete this form.
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Q: What are the tax rules of an HSA?
A: An HSA is tax-free if used for qualified medical expenses.
Earnings on money in the HSA are not considered part of your gross income. If
you have any questions, you should contact the Internal Revenue Service.
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Q: How are distributions taxed after
the accountholder is no longer an eligible individual?
A: If the accountholder is no longer an eligible individual,
distributions used exclusively to pay for qualified medical expenses are not
taxed.
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Q: What happens to the HSA if I die?
A: Upon death, ownership of the HSA is transferred to your
beneficiary. If the beneficiary is a person other than your spouse, the account
is no longer an HSA and funds will be taxed upon distribution. If the beneficiary
is a person other than your spouse, the account is no longer an HSA and funds
must be included in the beneficiary's gross income.
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Q: What are the income tax consequences
after the HSA accountholder’s death?
A: Upon death, any balance remaining in the accountholder’s
HSA becomes the property of the individual named in the HSA instrument as the
beneficiary of the account. If the accountholder’s surviving spouse is
the named beneficiary of the HSA, the HSA becomes the HSA of the surviving spouse.
The surviving spouse is subject to income tax only to the extent distributions
from the HSA are not used for qualified medical expenses.
If, by reason of the death of the accountholder, the HSA
passes to a person other than the accountholder’s surviving spouse, the
HSA ceases to be an HSA as of the date of the accountholder’s death, and
the person is required to include in gross income the fair market value of the
HSA assets as of the date of death.
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Q: Who is responsible for determining
whether HSA distributions are used exclusively for qualified medical expenses?
A: As the HSA accountholder, you must ensure that distributions
are used for qualified medical expenses. Records of medical expenses should be
maintained as evidence that distributions have been made for these purposes.
You must also ensure that contributions to the HSA do not exceed the maximum
limits.
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Q: If I change employers, what happens
to my HSA?
A: Since you are the owner of the HSA, it is your account
and it is portable, allowing you to maintain the account if you change employers.
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Q: How will HSA statements be delivered
and how frequently?
A: Monthly HSA statements itemizing deposits and withdrawals
will be provided. You may also access historical account statements online.
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IMPORTANT INFORMATION
This Health Savings Account (HSA) is a custodial account
with Waterfield Bank. Terms and conditions of the HSA
are included in your HSA application and agreement, your Debit Card Agreement
and HSA Product Disclosure Statement. Waterfield Bank deposit products that are held
in the HSA are FDIC insured.
This FAQ page is not intended to provide tax or legal
advice. Contact a qualified accountant or attorney to address tax or legal questions.
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