Health Savings Account Answers
Get All Your Questions Answered About Health Savings Accounts
HSA FAQ Questions Answered
HSA FAQ: THE BASICS
The money deposited, as well as the earnings, is tax-deferred. The money can then be withdrawn to pay for qualified medical expenses tax-free. Unused balances roll over from year to year.
Everyone (not just the self-employed or small business owners) with a qualified high-deductible health insurance plan is eligible for a tax-deductible HSA.
A high-deductible health plan (HDHP) is a health plan with a minimum deductible of $1,400 for self-only coverage and $2,800 for family coverage. The maximum out-of-pocket expenses for allowed costs must be no more than $6,900 for self-only coverage and no more than $13,800 for family for 2020.
For 2021, HSA plans annual deductibles are $1400 for individuals and $2,800 for families. Annual out-of-pocket expenses (including deductibles and copayments, but not premiums) are capped at $6,900 for individuals or $13,800 for families.
For 2021, HSA plans annual deductibles are $1400 for individuals and $2,800 for families. Individuals can contribute up to $3,600 to their HSAs while families can contribute up to $7,200.
You do not have to itemize your deductions on your federal income taxes to deduct your contributions to an HSA. You can use the health savings account to pay for your low-dollar medical expenses, or those that are not covered by the health insurance plan. Once you meet the deductible of your health insurance plan, the health insurance company will pay for a part or all of your medical expenses, as defined in the policy.
Another option available to self-employed people is to sign up for a MEC (minimum essential coverage) insurance plan, and pair it with a non-insurance health sharing plan membership. Click here to learn more about this health sharing plan that can work with an HSA.
- I have some medical history. How do I know if I will qualify for high deductible HSA insurance plan?
- When you are paying for your medical expenses from your HSA account, how does your insurance company know when you have paid up to your deductible?
If you use an in-network provider, they can file your claim for you. This is the smart way to work things, as it will ensure that you receive the insurance company’s discounted PPO price instead of having to pay the full price.
Or, you can save the bills and submit them to the company yourself, either all at once or after you have reached a certain limit in bills.
HSA FAQ: QUALIFYING PLANS
The maximum out-of-pocket expense for allowed costs is $6,900 for self-only coverage and $13,800 for family coverage. Other restrictions apply, including reporting requirements established by the IRS.
For 2021, HSA plans annual deductibles are $1,400 for individuals and $2,800 for families. Annual out-of-pocket expenses (including deductibles and copayments, but not premiums) are capped at $7,000 for individuals or $14,000 for families.
For more information on those restrictions, please visit the IRS page on HSAs.
- Why are all health insurance policies that meet the stated requirements for high-deductible health insurance plans not considered HSA-qualified?
Some sticking points are “per person deductibles” and “mandated coverage” that may be required under state insurance laws but are disallowed under the federal HSA laws. This may involve considerable expense that insurance companies are not willing to assume at this time.
- With a high-deductible health plan, will I have to pay full price for doctor visits, or will I receive a PPO discount?
- Am I eligible for an HSA-qualified plans as my primary coverage but am also covered by my spouse's employer-provided (non-HSA) plan?
HSA FAQ: HSA CONTRIBUTIONS
For 2021, individuals can contribute up to $3,600 in their HSAs while families can contribute up to $7,200.
The annual maximum HSA contribution will change each January 1 based on the Consumer Price Index (CPI). The new contribution amounts will be announced by the IRS. There are no maximum limits on the account accumulation.
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 both spouses are eligible individuals and both spouses have established an HSA in their name and turn 55, then both can make catch-up contributions. If only one spouse has an HSA in his or her name, only that spouse can make a catch-up contribution.
Contributions may be made by anyone on behalf of the account beneficiary.
All HSA plans have an aggregate deductible where one or all family members contribute and work towards meeting a single deductible. You have until April 15, 2022 to make contributions to your HSA and claim it on your 2021 tax return.
- 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)
- Cannot be eligible to be claimed as a dependent on another person’s tax return
Your maximum contribution for the year will be 5/12 (for the five months of January through May) times the contribution limit of $4,500 ($3,500 plus a $1,000 catch-up contribution allowed for those over age 55).
Please see our list of HSA administrators for more information.
- Do contributions to an HSA in any way affect my ability to contribute to an individual retirement account (IRA)?
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 so long as it is only used to pay for qualified medical expenses.
- If your spouse has non-qualifying family coverage that includes you, it makes you an “ineligible individual” and you may not contribute to an HSA.
- If your spouse has an individual HSA-qualifying plan, then you would have to subtract your spouse’s contribution from the maximum that you could otherwise contribute.
Neither the Treasury nor the IRS has indicated that there is any problem with an account owner covering a domestic partner under an HDHP and having the domestic partner’s expenses count toward satisfying the family deductible under the HDHP, notwithstanding that these individuals are not related. However, most individual insurance plans will not cover domestic partners, so the two individuals would probably need to get individual policies.
Unlike a spouse, you may not take a tax-free distribution from your HSA to pay for your domestic partner’s expenses, unless your domestic partner is considered to be a dependent under IRS Code Section 152.
HSA FAQ: HSA INVESTMENTS
- Are other investment options allowed, such as real estate, limited liability companies, or gold bullion?
Investments NOT permitted include life insurance contracts, collectibles such as art, antiques, metals, gems, stamps, alcoholic beverages, or other tangible property as specified in Section 408(m) of the Tax Code.
Making your deposit as early in the year as possible will also help maximize the tax-deferred growth of your funds.
HSA FAQ: HSA DISTRIBUTIONS
Funds used to pay for the following are tax-free and penalty-free:
- Qualified medical expenses as defined under Section 213 of the IRS Code (See IRS Publication 502: Medical and Dental Expenses). This is the same code section that governs medical savings accounts.
- COBRA insurance
- Qualified long-term care insurance and expenses
- Health insurance premiums for individuals receiving unemployment compensation
- Medicare and retiree health insurance premiums, but not Medicare supplement premiums
- Funds may be used for eligible expenses for your spouse or dependents, even if they are not covered by the HDHP.
See Qualified Expenses for a more complete list.
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.
- Do I have to reimburse myself from my HSA within a certain time period of incurring the medical expense?
- What happens If I withdraw money from my HSA to pay a medical bill, but then later I am reimbursed by my insurance company for that medical expense?
At this point you are also entitled to take out any amount from your account for any reason, penalty-free (although you must pay income taxes on the withdrawals at that time). There are no requirements laid out in the law at the present time indicating when you must start taking distributions. However, we would expect the IRS to treat this like an IRA. If that is the case, then you must start taking distributions from your account at age 70 and a half.
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