HSA FAQS
Health Savings Account Answers
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HSA FAQ Questions Answered
HSA FAQ
HSA FAQ: THE BASICS
An HSA (health savings account) works like an IRA (individual retirement account), except that the money contributed can only be used to pay health care costs. Participants first enroll in a high-deductible health insurance plan. Then a tax-deductible savings account may be opened to store money that can be used to pay current and future medical expenses.
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 The money can then be withdrawn to pay for qualified medical expenses tax-free.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.
To get the benefits of an HSA, the law requires that the savings account be combined with high-deductible health insurance. High-deductible health insurance plans have premiums that typically cost less than traditional low-deductible health insurance coverage because the insurance company does not have to process and pay claims for routine, low-dollar medical care, until the deductible of the plan has been met.
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 2021.
For 2022, 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 $7,050 for individuals or $14,100 for families.
You obtain coverage under a qualified health insurance plan with a minimum deductible of $1,400 for singles and $2,800 for families. You are then allowed to deposit up to $3,650* for singles or $7,300* for families into your HSA for 2021. Older Americans can save even more, with the option to deposit an additional $1,000 per year.
For 2022, HSA plans annual deductibles are $1,400 for individuals and $2,800 for families. Individuals can contribute up to $3,650 to their HSAs while families can contribute up to $7,300.
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.
Because HSA-qualified health plans all have high deductibles, they typically have lower premiums than traditional health insurance plans. The plans are individually priced based on age, residence, health history, build, date of enrollment, type of plan, deductible, PPO network options selected, billing method and other services. Our instant quote system will quickly provide you rates on the plans available in your area.
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. To learn more about this health sharing plan that can work with an HSA, visit our Mpowering Benefits page.
- I have some medical history. How do I know if I will qualify for high deductible HSA insurance plan?
Now that the Affordable Care Act (ACA) is in effect, an ACA-qualified health plan includes guaranteed acceptance, meaning an insurance company cannot reject your application or increase premiums because of a pre-existing condition or health issue.
In two ways…
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.
To establish a health savings account, you must be enrolled in an HSA-qualified high–deductible health insurance plan. First, review all the information on the HSA Insurance Plans page and look over the remainder of this Q&A section to familiarize yourself with HSAs. Get an instant quote and sign up for a plan, or give us a call for assistance. Then visit our Creating Your Health Savings Account page to learn how to choose a bank and set up your HSA.
HSA FAQ: QUALIFYING PLANS
Only certain plans are eligible to be used in conjunction with health savings accounts. A high-deductible health insurance plan is a health insurance plan with a minimum deductible of $1,400 for self-only coverage and $2,800 for family coverage.
The maximum out-of-pocket expense for allowed costs is $7,050 for self-only coverage and $14,100 for family coverage. Other restrictions apply, including reporting requirements established by the IRS.
For 2022, 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 $7,050 for individuals or $14,100 for families.
For more information on those restrictions, please visit the IRS page on HSAs.
The health insurance company or plan administrator will provide a written statement verifying this status. The words “qualifying high-deductible health plan” or a reference to IRC Section 223 will be included in the declaration page of the policy or in another official communication from the insurance company. If this documentation is not provided or available, it is NOT a qualifying plan.
The plan must meet the deductible and other design requirements that are adjusted each year, and the health insurance company must agree to report the list of qualifying policyholders to the IRS. The Department of Treasury will review and qualify health plans at the request of the sponsoring organization. Not all high-deductible health insurance plans are HSA-qualified even if they meet deductible and out-of-pocket requirements.
All high-deductible health insurance plans are not considered HSA-qualified in large part because the health insurance company must agree to report the list of qualifying policyholders to the IRS. Health insurance companies must also be willing to meet both the federal requirements as well as the state insurance requirements.
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 expenses that insurance companies are not willing to assume at this time.
Most qualifying high-deductible health plans are preferred provider organization (PPO) or HMO plans, though there are some indemnity plans that do not have a PPO network. If you have a PPO or HMO plan, any visits to a doctor in your network will be re-priced before you are billed according to the pre-negotiated pricing. Having access to a PPO or HMO network can mean substantial discounts in what you pay for your health care, even before you meet your deductible.
You can only contribute to your HSA when you are enrolled in an HSA-qualified plan. If you are also covered by a spouse’s non-HSA plan, then you would no longer qualify to contribute to your HSA. However, you can still use the money in it to pay for qualified medical expenses, or you can let it continue to grow on a tax-deferred basis.
HSA FAQ: HSA CONTRIBUTIONS
Annual contributions are capped at a high deductible of $3,600 for an individual and $7,200 for a family in 2021. Individuals over 55 may contribute an additional $1,000 per year.
For 2022, individuals can contribute up to $3,650 in their HSAs while families can contribute up to $7,300.
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, 2023 to make contributions to your HSA and claim it on your 2022 tax return.
The contribution limit is determined by the IRS and is based on the Consumer Price Index. If you do not keep your coverage for at least 12 months, the contribution limit will be pro-rated based on the number of months in which your HSA-eligible health insurance was in effect. For example, if your coverage begins on March 1 and is in effect only through December, you will only be allowed to deposit 10/12 of the annual contribution limit.
You have until April 15 to establish your HSA and make your contribution for the previous year, as long as you had your HSA-qualified health insurance in place by December 1. However, keep in mind that you can only reimburse yourself for expenses that incurred after the HSA account was established. So it is in your best interest to establish your HSA as soon as possible, even if you only put $25 in to start.
To be eligible to contribute, the individual:
- 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
Yes, as long as the contribution is made into the account of an eligible individual.
If you are turning 65, you are likely going to be enrolling in Medicare. Once you are enrolled in Medicare you may no longer contribute to your HSA. You lose eligibility to do so as of the first day of the month you turn 65. So if you turn 65 on June 21, you may not contribute to your HSA after June 1.
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).
Individuals can contribute their entire contribution at the beginning of the year, up to the applicable contribution limit. They might, however, have to make a corrective distribution later in the year if the individual’s eligibility status changes during the year (for instance, if they become covered under another non-qualifying plan, or if their HDHP coverage ends).
Fees can be paid directly to the HSA administrator without impacting the contribution limit. Alternatively, administrative fees can be paid from the HSA without incurring taxable income.
No. The HSA can be set up with any qualified trustee or custodian. Many people choose to open their HSAs with a provider that is different from their insurance company to take advantage of lower fees or greater investment options, and to establish independence in the event that they change insurance providers.
Please see our list of HSA administrators for more information.
No. HSA contributions are tax-deductible regardless of the source of your income.
No. Unlike many other tax breaks, there aren’t any income limits. Anyone who buys a qualified high-deductible health insurance policy can open an HSA.
No. Your HSA contributions won’t affect your IRA limits. An HSA is another tax-deferred way to save for retirement, with the added advantage that you can withdraw funds tax-free if they are used to pay for qualified medical expenses.
You can fund your HSA with a one-time rollover from your IRA. If you can afford to fully fund your HSA without using a rollover from your IRA, you will get a full tax deduction for your HSA contribution.
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 you have an HSA, but your spouse has separate health coverage, the following special rules may apply: If you have an HSA, but your spouse has separate health coverage, the following special rules may apply:
- 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.
Unlike a spouse, a domestic partner’s health coverage will generally not affect your ability to contribute to your HSA, even if you were to cover your domestic partner under your HDHP. Because no rule requires domestic partners to divide an HSA contribution in the manner that married individuals are required to, a domestic partner who is covered under an account owner’s HDHP could open their own HSA and contribute the full amount of the deductible or the statutory maximum (whichever is less).
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.
Yes, you can deposit money over and above your contribution limit to cover these fees.
No, these charges must be paid for from within the HSA.
Yes. The owner of the HSA (and, in this case, not the person who made the contribution) would be able to claim the tax deduction.
Yes. You can fund your HSA from your business, and count it as a business expense.
HSA Contribution Limits for 2022 are up to $3,650 for singles or $7,300 for families. The 2023 HSA contribution limits are $3,850 for singles and $7,750 for families.*
HSA FAQ: HSA INVESTMENTS
An extensive list of qualified HSA administrators and trustees is posted on our HSA Administrators page. Investment options vary by administrator, and include savings accounts, stocks, bonds and mutual funds.
No, you may change administrators at any time, although some administrators may charge a fee to open or close your account.
Yes. The IRS places few limitations on the type of investments allowable for HSAs. Contrary to what most bankers and brokers will tell you, investment vehicles available to you for your HSA funds do include real estate, private notes and mortgages, limited partnerships, and many other options.
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.
Paying for your medical expenses as they occur and reimbursing yourself in later years allows the HSA to grow tax-deferred. You must retain records of medical expenses not reimbursed so they can be reimbursed in subsequent years, but by using this strategy your account can grow significantly over time.
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
The funds belong to you. Funds can be withdrawn for any purpose, at any time. However, if funds are withdrawn for reasons other than to pay for qualified medical expenses by someone under age 65, the amount withdrawn is taxable and subject to a 10 percent penalty by the IRS. After age 65, there is no penalty for non-qualified withdrawals but amounts are taxable.
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.
No. You cannot reimburse medical expenses you incurred prior to establishing your account. We recommend you establish your account as soon as possible once you obtain qualifying health insurance coverage.
You can only use your HSA funds to pay health insurance premiums if you are collecting federal or state unemployment benefits, or if you have COBRA continuation coverage through a former employer.
Each January you should receive form 1099-SA, which will indicate the total distributions you took from your account during the previous year, and form 1099-INT, indicating your earnings on the account during the year.
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.
No. It is your responsibility to keep track of your own qualified medical expenses. Individual contributions and taxable distributions should be reported on form 1040.
No. There is no time limit for when you can reimburse yourself for your health care expenses. You should keep legible receipts of your medical expenses, as well as records of when you do reimburse yourself.
That is what is referred to as an erroneous distribution. The account holder can repay the erroneous distribution by April 15 of the following year with no penalty if there is reasonable evidence that the original distribution was made in good faith and that it was a qualified medical expense. The repayment is classified as an adjusted entry, not a contribution; therefore it would not count twice toward the yearly maximum.
When you turn 65 you become eligible for Medicare. If you enroll in Medicare, you are no longer eligible for coverage under a high-deductible health plan. You may still use tax-free HSA funds to pay qualified medical expenses, Medicare Part D premiums, and retiree health insurance premiums.
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.
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.
If you become permanently disabled, you may withdraw your funds at any time, without penalty. Withdrawals will be subject to income tax at that time.
Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage. The funds in your account roll over automatically each year and remain indefinitely until used. There is no time limit on using the funds.
Yes, you can use HSA distributions to pay for Medicare Parts A and B, Medicare Advantage, and Part D prescription drugs, as well as out-of-pocket expenses and employment-based retirement health benefit premiums.
The Affordable Care Act does include HSA-qualified health plans. You can also apply for a premium tax credit subsidy to help with your premium costs if you qualify. In fact, by funding your HSA, you reduce your taxable income to enhance your eligibility for subsidies or cost-sharing reductions in premiums.
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