Health Savings Accounts (HSAs) have been available since 2004, yet, people are still learning to appreciate their full potential when it comes to planning medical expenses and retirement opportunities. HSAs provide a simple and easy way for families to save funds, tax free, for current and future health-related expenses. HSA funds may be used to cover health-related expenses for the account owner, spouse, or eligible tax dependents. And, employers that offer HSA plans for employees paired with high deductible health plan benefits, can realize cost savings as well as happier, healthier employees.
Who can make HSA Contributions?
Contribution eligibility: According to the IRS, account owners must meet the following criteria to be eligible to contribute to an HSA account:
- Must be currently enrolled in an HSA-qualified health plan
- Not enrolled in any other non-HSA qualified health plan
- Not have access to a general-purpose flexible spending account (FSA)
- Not claimed as a dependent on another person’s tax return
- Not enrolled in Medicare, Medicaid, or Tricare
- Not used VA medical benefits in the past three months, apart from preventive services or treatment for a service-connected disability
HSAs have several financial advantages
1. Tax-free cash
HSA contributions are tax free (pre-tax through payroll deductions or tax-deductible). Earnings are also tax free, as are funds that are withdrawn for eligible medical expenses.
2. Flexibility
There is no time limit on when the funds in the HSA need to be used. There is also no limit on the amount the account can grow, year after year.
Account owners decide how and when to use their funds. You can choose when you want to use your HSA funds, whether it be for current medical expenses or future expenses. You can choose to keep the funds in the account earning interest and use other funds to cover your health-related expenses. Then, when you decide to “reimburse” yourself, you can simply withdraw the funds tax free.
3. Portability
Because you are the account owner, you keep 100% of the deposited funds with you when you retire, change employers, or switch health plans. This includes any money your employer may have contributed.
Helpful Hint: Record-keeping
When “reimbursing yourself”, take your non-HSA receipts from your prior expenses and move these to a tax folder for the year you actually took the distribution. Payments and reimbursements may only be made for medical expenses occurring while your HSA is open and active.
Making contributions to your HSA
The annual calendar year maximum contributions to an HSA, as established by the IRS, for 2022 are $3,650 for an individual and $7,300 for a family. Individuals 55 and older can make an additional catch-up contribution of $1,000.
Spouse advantage
A married couple can make two catch-up contributions if both spouses are eligible. But each spouse must deposit the catch-up contribution into separate accounts.
No dollar limits
There is no limit to the dollar balance that can build in the account over time. Contributions can come from:
- Employee pre-tax payroll withholding
- Employer contributions (non-taxable income)
- Individual contributions from account owner or other individual (tax-deductible for account holder)
- IRA or Roth IRA rollover
What are allowable expenses?
According to IRS Publications 969 and 502, an expense must be primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease to be a qualified medical expense. It must be to alleviate or prevent a physical or mental defect or illness. These expenses may or may not apply to your insurance deductible depending on the coverage provided by your medical plan.
Vision and dental expenses, such as glasses, contact lenses, eye exams, dental cleanings, and orthodontia are all allowable expenses from your HSA. Medical supplies and over-the-counter medications such as bandages, crutches, test strips, aspirin, allergy medicines, and even contact lens solution are allowable.
Insurance premiums are allowable only under the following circumstances:
While receiving federal or state unemployment benefits, COBRA premiums, qualified long-term care insurance premiums, Medicare, and other healthcare premiums after age 65 (except for Medicare supplement policies such as Medigap).
What are non-allowable expenses?
Insurance premiums are not eligible expenses (exceptions listed above).
Costs associated with non-medically necessary treatments are not eligible. This includes:
Cosmetic surgery and items meant to improve one’s general health (but which are not due to a specific injury, illness, or disease) such as health club dues, gym memberships, vitamins, and nutritional supplements.
HSAs at tax time
- You’ll receive Form 1099 SA for your distribution total and Form 5498 SA for your contribution total from the previous year. These figures are reported to the IRS, and you are required to report them on IRS Form 8889 when filing your federal taxes. See IRS Publication 969 or consult your tax advisor for further information.
- You may make contributions to your HSA for the previous calendar year up to the tax filing deadline, which is normally April 15th. If you make prior year deposits, you will receive an updated Form 5498 SA in May with your complete contribution total to keep with your tax records.
Helpful Hint: Prior year deposits
Prior year contributions should be clearly communicated to your HSA provider. If mailing a deposit, be sure to note it is for the prior year. Deposits made at an ATM machine, remote deposit using a mobile phone, electronic transfers made using any method or those that are not specifically communicated to HSA vendor will automatically be processed as a current year contribution.
How HSAs benefit employers
A high deductible health plan (HDHP) paired with an HSA can help employers cut costs while providing employees the very best tax savings on medical expenses.
Lower insurance premiums
Employers can recognize lower insurance premiums by moving to an HDHP, which will save on health insurance premiums without sacrificing employee coverage, because HDHPs are often more cost-effective than traditional health plans.
With High Deductible Health Plans, employees often take more ownership of their health and healthcare spend. As employees become more educated and involved healthcare consumers, employers could potentially see lower increases on annual health insurance premiums.
Tax savings
FICA savings. When employees contribute to their HSAs pre-tax, the IRS doesn’t consider those contributions wages. That means the employee and the employer both don’t have to pay FICA taxes on them. That’s an extra 7.65% back for both the employer and employee.
Improved employee retention
Lack of benefits can be a major reason why employees leave jobs. Because HDHPs/HSAs can help your employees save money and invest for the future, they’re a great addition to any benefits package.
Finding the right HSA partner
When searching for a Health Savings Account Administrator, look for a provider who has experience and track record to be a trusted advisor. They need to be experienced and knowledgeable in all aspects of HSAs. Look for a provider who:
- Offers a nominal or No Fee account: Offers a core account for HSA spend activity and provides the opportunity to save/invest your HSAs funds with minimal expense. (Check for monthly maintenance fees, minimum balance requirements, set-up fees, transaction limits, check writing privileges, etc.)
- Has ease of use: Allows you to open/activate your account quickly, safely, 24/7 through a secured online platform.
- Offers quick account access: Provides additional services through a digital banking platform and/or mobile app.
- Offers investment options: For future financial needs.
- Offers educational resources: Provides a website which is easy to use and navigate with tutorials, forms, and technical support.
- Has a dedicated client care team: To help and support specific HSA questions and needs.
- Offers multiple access points: Good communication options include phone, text, chat, email, etc.
Whether you have an existing HSA account or you are newly eligible due to your qualified High Deductible Health Plan, having your account opened and activated will allow your family to take full advantage of this tax savings tool now and into the future.
The HSA Authority
The HSA Authority, associated with Old National Bank, is an experienced Health Savings Account administrator and among the first to bring HSAs to the market in 2004. Chosen as HSA Trustee for the State of Indiana employees, HSA Authority provides customized solutions for employer groups and individuals in all 50 states.
Ruste Pontenberg is Vice President and Sales Manager for The HSA Authority powered by Old National Bank. He has 30 years of consumer and small business banking experience and leads a successful team of experts at The HSA Authority. One of the largest HSA administrators in the country, The HSA Authority partners with insurance brokers and employers to serve more than 2,300 employer groups and accounts in all 50 states.
Reach Ruste at: Ruste.Pontenberg@theHSAuthority.com
Phone: 260-310-6630 or Cell: 260-452-4483
Learn more at: www.theHSAauthority.com
From HSA Authority:
This content is not intended to provide legal, tax, accounting, financial or investment advice or indicate the suitability of any product or service for your unique circumstances. You are encouraged to consult with a qualified legal, tax, accounting, financial or investment professional based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information
