What is a Health Savings Account?
The take care by WageWorks Health Savings Account (HSA) is like a 401(k) for medical expenses. It enables you to set aside money from your paycheck pre-tax into a savings account used for eligible expenses and have the interest grow tax-free.
You can also invest a portion of your HSA savings in a variety of investment options. Like Flexible Spending Accounts (FSA), participants use pre-tax funds deposited into an account to pay for out-of-pocket, eligible healthcare expenses. Unspent money is portable and rolls over into the next year to cover expenses or to continue earning interest tax free. HSAs also differ in that you can take your money with you if you switch employers, or even if you change health insurers.
How does it work?
HSA contributions are deposited in an FDIC-insured special interest-earning account, which you can draw from at any time. HSA funds can be used for eligible expenses until the deductible has been met. Then the individual's insurance will begin coverage. Unused money can stay in the account or be placed in an investment account that offers competitive interest rates, low fees, and a variety of options.
How do I save money with an HSA?
An HSA can help you save in three ways.
First, as you add funds into your account, your contributions reduce your annual taxable income.
Second, the funds you withdraw to pay for qualified medical expenses remain untaxed.
Third, you save again when funds in your HSA accounts earn interest tax free.
Am I eligible to open an HSA?
You can open an HSA but you must have a corresponding qualified high deductible health plan.
More technically, an HSA can be established for any individual that meets all of the following:
- Is covered by a high deductible health plan
- Is not covered by another health plan
- Is not eligible to be claimed as a dependent on another person’s tax return
- Is not entitled to Medicare benefits
HSAs are available to any individual covered by a qualified high deductible health plan, a type of health insurance plan specified by Congress with generally lower premiums and higher deductibles than a traditional health plan. Ask your employer for details and enrollment information if a high deductible health plan option is offered.
Are there any income limits affecting my eligibility?
No, everyone is eligible.
I have a high-deductible insurance policy, do I qualify for an HSA?
You may, but in order to qualify for an HSA you must be an eligible individual (see above) and have a qualified high-deductible health plan (HDHP).
A qualified HDHP is one that has specified minimum limits for the annual deductible and maximum limits for out-of-pocket expenses. Specifically, for individual coverage the HDHP must have an annual deductible of at least $1,250 and require that annual out-of-pocket expenses (includes co-payments and deductibles but not insurance premiums) paid not exceed $6,350.
For family coverage the limits are an annual deductible of not less than $2,500 and require that out-of-pocket expenses not exceed $12,700. These are the 2014 limits.
Click here to learn if you qualify for a HSA.
My spouse has a health policy through his/her employer, am I eligible?
If your spouse has an individual policy and no other insurance and you are otherwise qualified (see above), you are eligible to have an HSA. However, if your spouse participates in an FSA you would not be eligible for an HSA. The reason for this is you are not eligible for an HSA if you are covered by “other insurance”.
Even though you are not covered by your spouse’s health insurance, the IRS has determined that your spouse’s FSA is considered “other insurance” that makes you ineligible for an HSA. An exception to this rule exists for limited purpose FSAs (those that cover vision and dental expenses only) and you would be eligible for an HSA if your spouse had a limited purpose FSA.
If my spouse has a non-HDHP would that prohibit me from getting an HDHP?
Generally, no. As long as your spouse’s non-HDHP does not cover you, you remain an eligible individual and can participate in an HSA.
If your spouse had a family non-HDHP and you were not exempted from that coverage then you would not be an eligible individual and would not be able to participate in an HSA. However, if, for example, your spouse had a family non-HDHP to cover himself and your two children only, then you would still be eligible to open an HSA.
I have an HDHP through my employer but my employer does not offer an HSA, can I still have one?
Yes. The HSA belongs to the individual not the employer and any eligible individual may open an HSA. As long as you are covered under a High Deductible Health Plan (HDHP) you may open and contribute to an HSA.
My spouse and I have family coverage, can we both open an HSA?
Yes. You may both open an HSA however, the total amount that may be contributed to your HSAs is still the contribution limit.
If I lose my job or retire, what happens to my HSA?
Your HSA belongs to you regardless of your employment. If you lose your job and elect to retain your HDHP under COBRA you may even pay the COBRA premiums from your HSA.
Who can contribute to my HSA?
Any eligible individual may contribute to an HSA.
For an HSA established on behalf of an employee both the employee and the employer may make contributions. Additionally, family members may make contributions on behalf of other family members as long as the other family member is an eligible individual (i.e., has a qualified HDHP and is not otherwise insured).
How do I fund my HSA?
You decide how much to contribute to your HSA, how to invest, and how to use the funds.
You can add money to your HSA in one of two ways:
- Automatic payroll deductions: Funds are moved from your paycheck, tax-free, into an HSA.
- Direct contributions: You can choose to add funds to your HSA at any time. While these contributions aren’t tax-free, they can be deducted on your tax return.
How much can I contribute to my HSA?
The IRS determines how much individuals can contribute to an HSA.
The maximum amount for 2015 is:
- $3,350 for an individual
- $6,650 for a family
Note: If you are age 55 or older as of 12/31/2015, you may also contribute an extra $1,000 as a catch-up deduction.
Can I fund my account at the family level if I have single coverage?
No, if you have single coverage you are limited to the individual HSA contribution limit. You may use your HSA funds to pay for the qualified medical expenses of family members; however, the amount you may contribute to your HSA is limited by the level of your insurance coverage.
Do I need to fund my entire HSA all at once or can I fund it over time?
You can fund your account over time or all at once.
Also, one of the large benefits for employees is that contributions are tax free; individuals’ contributions are made on a pre-tax basis, employer contributions are deductible as employer-provided coverage for medical expenses and contributions on behalf of another family member are deductible (regardless of whether the person contributing itemizes their taxes).
How do I make additional contributions after I opened my HSA?
A simple method to do this is to send a check to HSA Bank. You can access the plan form on our website. This form will provide the Custodian Bank all the required information regarding your additional contribution.
What is a catch-up contribution?
Eligible individuals who are over age 55 but under age 65 are allowed to make additional “catch-up” contributions to their HSAs. The catch-up contribution for 2015 is $1,000.
Can both spouses make a catch-up contribution?
Yes; however, the catch-up amount cannot be combined and put into one HSA: each spouse must open an HSA and put the catch-up amount into his/her own respective HSA.
I am age 65 and covered under an HDHP, can I still contribute to my HSA?
As long as you have not enrolled in Medicare Part A or B you are an eligible individual and may contribute to your HSA. Once you enroll in Medicare you may no longer contribute to your HSA.
For most individuals this means you will no longer be eligible when you turn 65. You lose eligibility as of the first day of the month you turn 65.
For example, if you turn 65 on July 21, you are no longer eligible for an HSA as of July 1. Your maximum contribution for that year would be 6 out of 12 months of that year (you were eligible the first six months of the year) times the applicable federal limit (remember to include the catch-up amount in the federal limit).
What if I am only eligible part of the year?
If this is your first year of coverage under a HDHP and you start mid-year, you can contribute up to the full applicable federal limit; including a full catch-up amount if between ages 55–65, so long as you start your HDHP coverage no later than December 1 of that year.
In this case; however, you will be subject to a testing period. The testing period requires that you maintain HSA eligibility for a period beginning on December 1 of the year you started and ending on December 31 of the next year.
When do I have to make my contribution?
You can make your HSA contribution until your tax filing due date (April 15 of the year following the tax year for most people).
What expenses are covered by my HSA?
In general you can use your HSA funds to pay for any qualified medical expense. Qualified medical expenses are a defined term created by the IRS and include: medical care, prescription drugs, and payment for long term care.
Expenses paid by the account beneficiary for medical care are covered. These expenses include:
- Ambulance costs
- Artificial limbs
- Artificial teeth
- Birth control pills
- Contact lenses
- Doctor visits
- Some dental expenses
- Vision care (eyeglasses, contacts, Lasik surgery)
- Hearing aids
- Lab fees
Generally, health insurance premiums are not qualified medical expenses however, in certain circumstances they can be qualified (e.g., certain amounts of Long Term Care Insurance or Medicare part A or part B for qualified individuals).
to view full list of eligible expenses.
Can I use my HSA to pay for health insurance premiums?
Generally, you cannot treat insurance premiums as qualified medical expenses unless the premiums are for:
- Long-term care insurance. (subject to IRS mandated limits based on age and adjusted annually, see IRS Publication 502: Long-Term Care).
- Healthcare continuation coverage (such as coverage under COBRA – see IRS Publication 502: COBRA Premium Assistance).
- Healthcare coverage while receiving unemployment compensation under federal or state law.
- Medicare and other healthcare coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).
Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. For item (4), if you, the account beneficiary, are not 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) generally are not qualified medical expenses.
Can I withdraw the funds from my HSA account at any time?
Yes, however, if the funds are withdrawn for any expense other than a qualified medical expense, the IRS will impose a 20% penalty tax.
After you reach age 65 you can withdraw the funds without penalty but the amounts withdrawn will be taxable as ordinary income.
What can I invest the funds in my HSA account in?
You can invest the funds in bank accounts, money markets, mutual funds, and stocks. Login to your account to see the available investments.
You may not invest in collectibles, art, automobiles, or real estate. As the initial funds in your HSA may need to be used to for medical expenses we recommend you maintain a small balance in your checking account and consider more liquid investments until you have a good estimate of your needs.
Do I have to track the expenditures made from my HSA?
Yes, the individual who establishes the HSA is required to maintain a record of the expenses sufficient to demonstrate that the distributions were for qualified medical expenses.
I have self only insurance coverage, can I use my HSA funds for my family members?
Yes, you may use your HSA to pay for the qualified medical expenses of any of your dependents so long as their expense is not otherwise reimbursed.
I am 65, are Medicare Part D premiums qualified medical expenses?
Yes. If an account beneficiary has attained age 65, premiums for Medicare Part D for the account beneficiary, the account beneficiary's spouse, or the account beneficiary's dependents are qualified medical expenses.
Are there any limits on the amount I have to spend or on the amount I can carry over to subsequent years?
No, there are no limits and the entire balance can be carried over from year to year.
Can I transfer my IRA into an HSA?
Yes, the law allows a one-time transfer of IRA assets to fund an HSA.
The amount transferred may not exceed the amount of one year’s contribution and individuals must be otherwise eligible to open an HSA. Transfers are not taxable as IRA distributions however; amounts transferred into an HSA from an IRA are not deductible. See reference Pub 969 for details.
How do I access my HSA funds after age 65?
Once you reach age 65 your funds can be withdrawn at any time and are only subject to ordinary income tax.
However, you may avoid any tax by continuing to use the funds for qualified medical expenses. For those over age 65 premiums for Medicare Part A or B, Medicare HMO and employee premiums for employer sponsored health insurance can be paid from an HSA.
How do I submit a mileage claim?
The IRS has changed mileage reimbursement rates for medical care effective based on the date the service is incurred. Mileage for travel to / from eligible healthcare–on or after January 1, 2017 is $0.17 per documented mile.
Please include the following information with your mileage claim:
- Date of Service
- Type of Service (doctor visit, trip to pharmacy, etc.)
- Actual Mileage and rate (16 miles round trip @ $0.17/mile)
- Total amount being requested (16 x .17 = $2.72)
- Submit the claim for mileage along with a Pay Me Back claim or with the Explanation of Benefits (EOB). Claims will need to match the mileage reimbursement to a service and its date.
- Many online mapping services will detail your route and mileage from home to service provider. This is helpful (but not required) in submitting mileage reimbursement claims.