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HSA Overview
What is a Health Savings Account (HSA)?
Health Savings Accounts (HSAs) are tax-advantaged savings accounts to which pre-tax or tax deductible funds can be contributed to pay for eligible medical expenses or for longer-term investment purposes. HSAs must be coupled with an HSA-compatible high deductible health plan (HDHP) in order to make contributions to the account.
The combination of an HSA and HDHP was created in order to provide consumers with more control over their healthcare spending and lower healthcare costs. HSAs and HDHPs provide several advantages for consumers and the market as a whole:
- Generally, lower monthly premiums than traditional plans.
- Opportunity for consumers to save and invest pre-tax or tax deductible dollars (similar to a 401k plan).
- Opportunity for consumers to pay for healthcare expenses with pre-tax or tax deductible dollars.
- Lower premiums mean lower fixed costs, providing consumers with greater control over where and how they spend their healthcare dollars.
- Greater incentive to shop carefully for healthcare services.
Most importantly, an HSA is owned by the consumer. If a consumer’s employment changes, the HSA goes with her. If she migrates to a health plan not compatible with HSAs, her money still remains with her. The money in her account rolls over every year and can be invested in a diverse set of funds. There is no “use it or lose it” requirement as you may have with other healthcare spending accounts.
| PART 1 | PART 2 |
|---|---|
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Used for:
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Which plans are compatible with HSAs?
An HSA must be coupled with an HSA-compatible high-deductible health plan in order to make contributions to the account. The IRS determines the guidelines for compatible HDHPs. Current guidelines are:
| IRS Requirements for 2009 | ||
|---|---|---|
| Single Plan | Family Plan | |
| Minimum Deductible | $1,150 | $2,300 |
| Maximum Out-of-Pocket | $5,800 | $11,600 |
| Contribution Limit | $3,000 | $5,950 |
| Catch-up Contribution (55 or older)* | $1,000 | $1,000 |
| * If a spouse is also 55 or older, a second HSA must be established if you wish to make a second catch-up contribution of $1,000. | ||
Please visit the website of our parent company, WellPoint, Inc., to learn about WellPoint’s affiliated health plans that provide a variety of excellent HSA-compatible HDHPs. To find eligible plans in your area, please contact your local WellPoint affiliated health plan or speak with your broker.
Who is eligible to open an HSA?
In addition to being enrolled in an HSA-compatible health plan, there are certain other criteria that are used to judge whether consumers are qualified for an HSA. A consumer cannot open an HSA if she:
- Can be claimed as a dependent on anyone else's tax return.
- Is currently enrolled in Medicare (note that enrolling in Social Security automatically enrolls one in Medicare).
- Is enrolled in any non-qualifying health coverage that does not satisfy the statutory minimum deductible requirements of Internal Revenue Code Section 223 (unless that coverage is limited to certain permitted types of coverage or insurance).
- Has a Flexible Spending Account or a Health Reimbursement Arrangement with her employer, or if she is covered under her spouse's Flexible Spending Account or Health Reimbursement Arrangement, she may not be eligible to open a Health Savings Account. (An employer's benefits administrator should be able to help answer whether a Flexible Spending Account or Health Reimbursement Arrangement will allow an employee to open a Health Savings Account.)
These conditions are subject to change. We encourage you to consult with your tax advisor to make sure you qualify. For more information, go to the U.S. Department of the Treasury’s HSA site.
What are the contribution guidelines for HSAs?
When coupled with a qualifying HDHP, your HSA has the following contribution guidelines:
- Contributions to your HSA can be made by anyone.
- Your contributions are tax deductible.
- If your employer contributes to your HSA, that contribution is done on a pre-tax basis.
- Any payroll deductions made through Section 125 for your HSA are also on a pre-tax basis.
- You may contribute the annual maximum amount as determined by the IRS, regardless of your plan’s deductible. The maximum for 2009 is $3,000 for individuals and $5,950 for families.
- You may contribute the annual maximum amount determined by the IRS, regardless of when your coverage begins, if you maintain coverage for the 12 month period beyond the calendar year in which you first became eligible.
- Example: if you have individual coverage that begins in November 2009, you may still contribute $3,000 for 2009 when you maintain coverage through the end of 2010.
- Your employer may roll over funds from your HRA or FSA account once, according to the legislative provisions.
How can HSA funds be used?
You have multiple options for using HSA funds:
- Funds can be used on a tax-deductible basis at any time for eligible medical expenses.
- When your account balance exceeds the minimum investment threshold, funds may be invested in a variety of mutual funds.*
- When you turn 65, you can use the funds for non-eligible medical expenses. The money is subject to income tax without any IRS penalties.
- If you are under age 65 and use your funds for non-eligible expenses, you will be subject to income tax and a 10% tax penalty.
What is the difference between HSAs and other health spending accounts?
| HSA | FSA | HRA | |
|---|---|---|---|
| What does it stand for? | Health Savings Account | Flexible Spending Account | Health Reimbursement Account |
| Who do the funds belong to? | Employee | Employer | Employer |
| Who can contribute to the account? | Employer, employee, and others | Employee and employer | Employer |
| Do the funds rollover year-to-year | Yes | No. Unused funds are forfeited to the employer. | May rollover if the employer's plan permits. |
| Is the account portable between employers? | Yes | No | No |
| Can the money be invested and consumers earn interest? | Yes | No | No |
What expenses are eligible for HSA reimbursement?
Section 213(d) of the Internal Revenue code provides information regarding the guidelines used to determine eligible expenses. You are encouraged to view the IRS website (Publication 502) for more information. ARCUS Financial Bank does not provide advice or guidance in determining if expenses are eligible under the IRS guidelines.
The following is a partial list of eligible medical expenses:
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HSA Eligibility
Which plans are compatible with HSAs?
An HSA must be coupled with an HSA-compatible high-deductible health plan in order to make contributions to the account. The IRS determines the guidelines for compatible HDHPs. Current guidelines are:
| IRS Requirements for 2009 | ||
|---|---|---|
| Single Plan | Family Plan | |
| Minimum Deductible | $1,150 | $2,300 |
| Maximum Out-of-Pocket | $5,800 | $11,600 |
| Contribution Limit | $3,000 | $5,950 |
| Catch-up Contribution (55 or older)* | $1,000 | $1,000 |
| * If a spouse is also 55 or older, a second HSA must be established and a second contribution of $1,000 could be made to that account. | ||
Please visit the website of our parent company, WellPoint, Inc., to learn about WellPoint’s affiliated health plans that provide a variety of excellent HSA-compatible HDHPs. To find eligible plans in your area, please contact your local WellPoint affiliated health plan or speak with your broker..
Who is eligible to open an HSA?
In addition to being enrolled in an HSA-compatible health plan, there are certain other criteria that are used to judge whether consumers are qualified for an HSA. A consumer cannot open an HSA if she:
- Can be claimed as a dependent on anyone else's tax return.
- Is currently enrolled in Medicare (note that enrolling in Social Security automatically enrolls one in Medicare).
- Is enrolled in any non-qualifying health coverage that does not satisfy the statutory minimum deductible requirements of Internal Revenue Code Section 223 (unless that coverage is limited to certain permitted types of coverage or insurance).
- Has a Flexible Spending Account or a Health Reimbursement Arrangement with her employer, or if she is covered under her spouse's Flexible Spending Account or Health Reimbursement Arrangement, she may not be eligible to open a Health Savings Account. (An employer's benefits administrator should be able to help answer whether a Flexible Spending Account or Health Reimbursement Arrangement will allow an employee to open a Health Savings Account.)
These conditions are subject to change. We encourage you to consult with your tax advisor to make sure you qualify. For more information, go to the U.S. Department of the Treasury’s HSA site.
In addition to a qualified HDHP, my employer is offering dental and vision plans. If I elect the dental and vision plan and the HDHP, can I contribute to an HSA?
Yes. As long as you are covered by a qualified HDHP you may also be covered by other types of “permitted insurance” as defined by IRS code. Permitted insurance includes policies that provide coverage for dental care, vision care, long-term care, accidents, disabilities, as well as a specific disease.
I joined my company in mid-April and am eligible for my employer's qualified HDHP effective June 1st. Am I eligible for an HSA this year? How much can I contribute for the plan year?
Yes, you may make contributions for this year, provided you are covered by a qualified HDHP no later than the first of December.
Under the Tax Relief and Health Care Act 2006, if you enroll before the first day of December of any year, you are considered eligible to make up to the entire year’s contribution to your HSA. This remains true as long as you continue to participate in a high deductible health plan for the next 12 consecutive months (13 months in total) beginning with the last month in the year in which you became eligible. During this time, you cannot have other non-qualifying health care coverage.
So, for 2009, you (and your employer) may contribute up to $3,000 if you have single coverage, or up to $5,950 if you have family coverage. In addition, if you are 55 or older, you may add up to $1,000 in additional monies as part of a “catch up” contribution.
However, if you enroll in the HDHP but end your coverage at any time during the 12-month period, your and your employer’s contributions are no longer eligible for tax benefits. You would need to calculate a prorated contribution amount based on your actual months of HDHP coverage and apply to have excess contributions returned. Excess contributions will be included in your income and subject to regular income tax plus a 10 percent additional tax.
For example: Your employer's plan year is January 1 to December 31 (12 months) and the annual deductible is $1500 for individual coverage. If you maintain HDHP coverage for six months (July through December), and the IRS maximum contribution limit for the year is $3,000, then your maximum contribution would be $1,500. [$3000/12 = $250 [maximum monthly contribution] $250 x 6 = $1500]. If you are 55, catch-up contributions are permitted and must also be pro-rated using the same formula.
You can avoid tax penalty by enrolling in a high deductible health plan individually, through another employer (if you terminate from your employment), COBRA or retiree medical coverage in order to continue your eligibility for the next 12 months.
What is first-dollar coverage?
First-dollar coverage means that you may receive a reimbursement for expenses immediately, without first meeting a deductible.
First-dollar benefits paid for “permitted insurance” expenses (such as vision and dental paid through a Limited Purpose FSA) or preventive care do not disqualify you from making HSA contributions.
What first-dollar benefits make me ineligible for an HSA?
First-dollar reimbursements for covered expenses from the following may make you ineligible for an HSA:
- Medicare
- Medicaid
- Flexible Spending Accounts (FSA)
- Health Reimbursement Accounts (HRA)
- Coverage under a spouse's plan, including:
- Low-deductible insurance coverage
- FSA or HRA through spouse's employer
Are there any age restrictions regarding opening an HSA?
The only age-related restriction for HSAs is that once an HSA account owner becomes enrolled in Medicare (note that enrolling in Social Security automatically enrolls one in Medicare), contributions to the account must stop. Generally this means at age 65. If, however, you become disabled and entitled to Medicare, contributions to the account must stop for the month in which you become enrolled.
If the person can be claimed as a dependent on someone else's tax return, she is ineligible to open an HSA. Although not an age restriction, generally you cannot open an HSA for your child if you, or someone else, claims them as a dependent.
Can I have an HSA in addition to an IRA or other qualified retirement plan?
You are allowed to have both an HSA and IRA or other retirement plan.
While HSAs are subject to many of the same rules as traditional IRAs, an HSA is not an IRA; it is a tax-advantaged savings account for current and future medical expenses.
The HSA may, however, be used to pay for non-medical expenses without penalty (on a taxable basis) after the accountholder turns 65, so it can be used to save for retirement.
I am currently covered under my spouse's traditional, low-deductible health plan. If I enroll in my employer's qualified HDHP, am I eligible for an HSA?
No. You are not eligible for an HSA if you are covered by any other health plan that is not a qualified HDHP.
Will my application for an HSA be put through any type of screening process?
There are no health related screenings or requirements to open an ARCUS Financial Bank HSA. There may be a required health screening for the high deductible health plan.
However, you will be required to complete some paperwork in order to open your account. This is required by the USA PATRIOT Act.
The USA PATRIOT Act establishes that banks that open HSAs must obtain, verify and record information that identifies individuals and entities that engage in certain transactions with or through the bank.
I am enrolled in an HMO. Am I eligible to set up an HSA?
In most cases, you are not eligible to set up or contribute to an HSA. Most HMOs provide coverage below the minimum deductible amount. However, any distributions you make from an existing HSA for qualified expenses continue to be tax-deductible and excludable from your gross income.
My spouse is contributing to a health FSA that reimburses expenses before the deductible is met. Can I make contributions to my HSA if I participate in a qualified HDHP?
No. A general-purpose health FSA or HRA that pays first-dollar benefits is the same as family coverage, because it is available to reimburse the qualified expenses of the employee and the employee's spouse and dependents. Consequently, if either you or your spouse participates in a general-purpose health FSA or HRA, neither of you will be eligible to contribute to an HSA.
Can my spouse and I have a joint HSA, like our regular checking account?
No, only one person can be named the account owner. If both you and your spouse have qualified HDHP coverage, you may each have your own account.
If both you and your spouse have family coverage under qualified high deductible health plans, the maximum total tax-deductible HSA contribution both of you can make (including employer contributions) is the IRS limit for family coverage. In 2009, that amount is $5,950. This contribution can be divided between you and your spouse however you wish. If you and/or your spouse are eligible to make catch-up contributions, you may each contribute your eligible catch-up contribution to your individual HSA.
Am I permitted to have more than one HSA?
Yes. You may have more than one HSA and may contribute to them all. The total contributions to your accounts cannot exceed the annual maximum contribution limit, however. Contributions from your employer, family members, or any other person must be included in the total.
Is there a minimum or maximum salary to open an HSA?
No. There are no salary restrictions — minimum or maximum — that make you ineligible to open and contribute to an HSA.
Can I start an HSA for my child?
No, you cannot establish separate accounts for your dependent children, including children who can legally be claimed as a dependent on your tax return.
I’m a single parent with HDHP coverage but have a child/relative that can be claimed as a dependent for tax purposes, and this dependent also has non-HDHP coverage. Am I still eligible for an HSA?
Yes, you are still eligible for an HSA. Your dependent’s non-HDHP coverage does not affect your eligibility, even if they are covered by your HDHP.
I am entitled to benefits from Veterans Affairs [VA]. Am I eligible for an HSA?
You are eligible for an HSA as long as you haven't received any VA medical benefits, including prescription drugs, during the preceding three months and you are currently enrolled in a qualified HDHP.
I’m active-duty military and have Tricare coverage, can I have an HSA?
At this time, Tricare does not offer an HDHP option so you are not eligible for an HSA.
Contributing to an HSA
How much can I contribute to my HSA?
For 2009, the combined maximum contributions to your HSA, including any made by your employer to your account, are $3,000 if you have individual coverage and $5,950 if you have family coverage. If you turn age 55 or older in 2009, you may add up to $1,000 more as a “catch up” contribution.
These amounts are valid as long as you enroll in qualified HDHP coverage before the first day of December, meaning you have held at least one full month of HDHP coverage, and so long as you continue to maintain qualified HDHP coverage for the next 12 months (Thirteen months in total).
What is the tax treatment of my HSA contributions?
Contributions to your ARCUS Financial Bank HSA are not subject to federal taxes or state tax (for many states) unless used to pay for non-qualified expenses.
Contributions may be made either directly by you to your HSA or through payroll deduction if your employer participates. If you make your contributions through payroll deductions, the amount is taken from your payroll before taxes are calculated. If you make deposits directly to your account, you may take an “above the line” deduction when filing your annual tax return.
"Above the line" means you reduce your taxable income regardless of whether you itemize or use the standard deduction on your income tax form. You may deduct the contribution amount, subject to the maximum annual contribution limits from your taxes, at filing time.
Employers may make contributions to your account as well; while you do not take a deduction for these contributions, they are excluded from your gross income.
What is the tax treatment of contributions made by a family member or anyone else to my HSA?
If a family member or anyone else makes a contribution to your HSA, the tax advantages apply to you and not the person making the contribution. You may deduct the contribution amount when filing your annual income taxes, in the same way you would if you had deposited the post-tax contribution on your own.
Employers may make contributions to your account as well; while you do not take a deduction for these contributions, they are excluded from your gross income.
All contributions to the account are combined and subject to maximum annual contribution limits.
I opened my HSA with a minimum deposit when I enrolled in my HDHP. I have not yet reached my maximum annual contribution. What is the last date that I may deposit the remainder of my maximum annual contribution and still take an "above the line" deduction for the year?
You have until April 15 of the following year to deposit the remainder of your maximum annual contribution for the current year. For example, you have until April 15, 2010 to contribute your 2009 maximum annual contribution.
What are “catch-up” contributions?
Catch-up contributions are permitted contributions made by an eligible participant that are in excess of maximum annual contribution limits. Eligible participants are HSA owners who are covered by a qualified HDHP and age 55 or older.
Catch-up contributions to your HSA are available for the calendar year in which you reach age 55. If you will reach age 55 before the close of the calendar year, you may make a full year's catch-up contribution, provided you are covered by a qualified HDHP no later than December 1st.
Can anyone make catch-up contributions to an HSA?
Yes. If you are 55 or older and covered by a qualified HDHP, you can make additional catch-up contributions each year until you are enrolled in Medicare benefits (note that enrolling in Social Security automatically enrolls one in Medicare). The maximum annual catch-up contribution to an HSA for 2009 is $1,000.
If both spouses have HSAs, then each is permitted full catch-up contributions, provided they are covered by a qualified HDHP for the entire year.
If you will reach age 55 before the close of the calendar year, you may make a full year's catch-up contribution, provided you are covered by a qualified HDHP no later than December 1st.
I am 65 years old and eligible for Medicare, but I am still working and have elected to keep my employer's health plan instead of enrolling in Medicare. I am enrolled in the HDHP offered by my employer. Am I eligible to make catch-up contributions?
Yes. If you are 55 or older and covered by a qualified HDHP, you can make catch-up contributions each year until you are enrolled in Medicare benefits (note that enrolling in Social Security automatically enrolls one in Medicare). The maximum annual catch-up contributions to an HSA per for 2009 is $1,000.
If both spouses have HSAs, then each is permitted full catch-up contributions, provided they are covered by a qualified HDHP for the entire year.
If you will reach age 55 before the close of the calendar year, you may make a full year's catch-up contribution, provided you are covered by a qualified HDHP no later than December 1st.
Can I make one lump-sum contribution to my HSA early in the year or spread contributions out during the year?
Contributions for the taxable year can be made in one or more payments at your convenience. If your employer contributes to your account, they too may make either a lump sum or periodic deposits to your account.
The IRS determines maximum annual contributions by your coverage type (single or family) annually. The annual total of all contributions to your account, from all sources, cannot exceed the IRS maximum annual contribution.
What is my maximum annual contribution to my HSA if our family coverage includes both individual (embedded) and family (umbrella) deductibles?
If the HSA account owner has family coverage with individual deductibles for each family member, they are still subject to a 2009 maximum annual contribution limit of $5,950 plus up to $1,000 in additional catch up dollars if they turn 55 or older during the year.
My qualified HDHP coverage was effective January 1, but I didn't establish my HSA until June. Can I still make my maximum annual contribution, or is my contribution reduced by the number of months I didn't have an HSA?
You can still make your maximum annual contribution. Your eligibility to contribute to an HSA is determined by the effective date of your qualified HDHP coverage. Your contribution for any given year depends on your enrolling in HDHP coverage by December 1st of that year and maintaining qualified HDHP coverage for the next 12 full months (13 months total).
The amount you can contribute is not determined by the date you establish your account unless you maintain qualified HDHP coverage for less than 12 full months, in which case the maximum is prorated by the number of full months of coverage.
What happens if I contribute more than my maximum annual contribution to my HSA?
If you contribute more than your maximum annual contribution to your HSA, you may withdraw the excess without penalty up until April 15 of the following year. After that time, the funds are subject to both ordinary income and an excise tax.
If I contribute more than my maximum annual contribution can I take the full amount as an above the line deduction?
No. You cannot take the excess as an above the line deduction. You have until the filing date of your federal tax return to take a distribution of the excess contribution from your HSA without incurring a 6 percent excise tax. The amount of the excess contribution is includable in your gross income for tax purposes.
Does how much I contribute to my IRA limit how much I can contribute to my HSA?
No. Your contributions to your HSA are limited to a maximum annual contribution adjusted each year by the IRS. Your contributions to an IRA have no bearing on your HSA and vice versa.
I have an HSA from my previous employer. I am now enrolled in an HMO. Am I eligible to make contributions to my HSA now?
Not in most cases. However, any distributions you make from an existing HSA for qualified expenses continue to be tax-deductible and excludable from your gross income.
My spouse is contributing to a health FSA that reimburses expenses before the deductible is met. Can I make contributions to my HSA if I participate in a qualified HDHP?
No. A general-purpose health FSA or HRA that pays first-dollar benefits is the same as family coverage, because it is available to reimburse the qualified expenses of the employee and the employee's spouse and dependents. Consequently, if either you or your spouse participates in a general-purpose health FSA or HRA, neither of you will be eligible to contribute to an HSA.
If I make contributions to my HSA through pre-tax payroll deductions (Section 125 cafeteria plan), can I change the per payroll deduction at any time?
Based on your employer's cafeteria plan rules, you may be allowed to increase, decrease, start or stop your HSA contributions at any time, provided that the change is prospective only. Remember you are still restricted to your maximum annual contribution.
Using My HSA Funds
My qualified HDHP coverage was effective January 1, but I didn't open my HSA until June. Are the expenses I incurred in February and March eligible for tax-free distributions from my HSA?
No. Expenses incurred before you establish your HSA are not eligible for tax-free distribution. You can only receive tax-free distributions from your HSA for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 10 percent penalty tax.
The “Establishment Date” of an HSA is important because an accountholder can only receive tax-free distributions from his/her HSA to pay or be reimbursed for qualified medical expenses incurred after the date the HSA is considered “established.”
I already have an HSA. I am now enrolled in an HMO. Can I use the funds in my HSA to pay for expenses not covered by the HMO, such as when I go out-of-network?
Yes. You always have the option to use your HSA funds however you wish. Distributions used exclusively to pay for qualified expenses continue to be free of federal taxes and state taxes (for many states). You may not, however, make contributions to your HSA because you are not covered by a qualified HDHP at this time. Should you enroll in a qualified HDHP at another time, you may then resume making contributions to your established HSA.
How soon can I withdraw funds from my HSA for qualified expenses? For example, what if I incur a medical expense in January and need $1,000 for the cost of treatment, before my deductible has been met?
Just like a checking account, you can only access funds that are already in your account.
However, as additional funds are added to your account via your deposits (and/or deposits from your employer), you can reimburse yourself for qualified medical expenses paid for out of pocket, so long as those expenses occur after the date of the establishment of your HSA.
Can I pay out-of-pocket covered expenses with after-tax dollars instead of using my HSA funds?
Yes. You always have the option to choose when and when not to use your HSA dollars. You may pay for qualified medical expenses with after-tax dollars, allowing your HSA balance to grow tax-free.
Many HSA participants elect to pay smaller expenses with after-tax dollars, allowing their balances to grow for the future.
Can I pay for my spouse's/dependent children's qualified medical expenses from my HSA even if they're not covered by a qualified HDHP?
Your HSA funds can be used to pay for out-of-pocket qualified medical expenses without federal taxes or state tax (for many states), even if the expenses are not covered by your HDHP. This includes expenses incurred by your family.
Qualified medical expenses include many items you might not expect: over-the-counter medications; dental visits; orthodontics; glasses; long-term care insurance premiums; cost of COBRA coverage; medical insurance premiums while receiving federal or state unemployment compensation and post age-65 premiums for coverage other than Medigap or Medicare supplemental plans. In addition, HSA funds may be used to pay your Medicare parts A and B premiums and for employer-sponsored retiree plans.
What happens if I take a non-medical distribution or a distribution for a non-qualified expense?
If you take a non-qualified distribution, you are subject to ordinary income tax and a 10 percent penalty tax. If you are age 65 or older, disabled, or your estate pays bills subsequent to your death, the 10 percent penalty may not apply.
The IRS requires that you confirm that your distributions are for qualified medical expenses. It is your responsibility to keep all documents (such as receipts) that show how you used your HSA, including any for non-qualified transactions, and self-report accordingly on your annual tax return.
How are distributions from my HSA taxed?
Distributions from your HSA that are used exclusively to pay for qualified medical expenses for you, your spouse, or dependents are excludable from your gross income. Your HSA funds can be used for qualified medical expenses and will continue tax-free (free from federal taxes and state tax, for many states) even if you are not currently eligible to make contributions to your HSA.
If you take a non-qualified distribution, you are subject to ordinary income tax and a 10 percent penalty tax. If you are age 65 or older, disabled, or for the year in which you die, the 10 percent penalty may not apply.
Are dental and vision care qualified expenses under an HSA?
Some dental and vision care expenses are qualified expenses, as long as they meet the current IRS criteria. For example, glasses, contacts and braces are generally deductible. Cosmetic procedures, such as cosmetic dentistry, are generally not deductible and would not be considered qualified expenses. For more information, please visit the IRS website (Publication 502).
Only qualified expenses incurred after you have established your HSA meet the requirements for tax-free reimbursement.
Can I use my HSA to pay for medical services provided in other countries?
Yes, provided the services are qualified medical expenses, the distribution would be free from federal taxes and state tax, for many states.
If I have an HSA, does it limit which doctors or hospitals I can use?
No. An HSA is just a funding mechanism to pay those qualified medical expenses not covered by your plan and has no impact on the providers you choose. You still follow your health plan's guidelines for receiving care.
With an HSA, you are free to use any doctor and any hospital you choose. However, significant cost savings may be available to you when you use providers in your plan's provider network. Provider networks offer a wide variety of physicians and service providers at discounted rates.
Is there a time/age by which I must begin withdrawing funds from my HSA?
No, you are never required to withdraw funds from your account. Your HSA can continue to earn interest and grow until you decide to use the funds. If you never use your funds, your spouse may inherit your account and continue its tax-free status, or your beneficiaries will receive the funds as a taxable event as part of your estate.
Both my spouse and I have HSAs. Can we use both accounts to reimburse ourselves for a qualified expense?
No, a single expense can only be reimbursed by a single account. You may however, use both accounts to reimburse yourselves for different expenses. For example, you may use your spouse's HSA to reimburse the entire family's dental expenses, yourself included, and use your HSA to cover expenses incurred prior to reaching the deductible.
I took a distribution for a doctor's visit that I didn't know was considered preventive care. The insurance company later paid the expense, which made my mistaken distribution taxable. If I return the funds to my HSA, do I still have to include the distribution as gross income and add the 10 percent penalty when I file my taxes?
If there is clear and convincing evidence that this was a mistake, you may repay the mistaken distribution no later than April 15 following the first year that you become aware of the mistake. Under these circumstances the distribution is not included in gross income and the 10 percent penalty does not apply. You will need to keep records that demonstrate the actions you took.
You will also receive tax forms from your financial institution that show the distribution, as they will not be able to identify the funds returned as a result of the error. You should follow the instructions on the forms 1099 and 5498, your form 1040 or contact your tax advisor for assistance.
Can I pay my health insurance premiums with an HSA?
You can only use your HSA to pay health insurance premiums if you are collecting Federal or State unemployment benefits, or you have COBRA continuation coverage through a former employer.
Can I purchase long-term care insurance with money from my HSA?
Yes, if you have tax-qualified long-term care insurance. However, the amount considered a qualified medical expense depends on your age. See IRS Publication 502 (found here) for the amounts deductible by age.
Who decides whether the money I’m spending from my HSA is for a “qualified medical expense?”
You are responsible for that decision, and therefore should familiarize yourself with what qualified medical expenses are (as partially defined in IRS Publication 502) and also keep your receipts in case you need to defend your expenditures or decisions during an audit.
HSA Administration
Who has control over the money invested in my HSA?
You have full control over the assets in your ARCUS Financial Bank HSA. When the total funds in your account reach certain limits, you have the option to invest excess monies. The investment choices will be yours to select from the options offered.
When is my HSA no longer an HSA?
Your HSA will no longer be considered an HSA if, upon your death, your estate or someone other than your spouse becomes the beneficiary of your account. Only if the account is transferred to your spouse will it remain an HSA.
Do I pay taxes on the fees charged by the financial institution to maintain my account?
No. IRS rules consider these to be allowable distributions. These charges are paid tax-free.
Will my bank notify me if I’ve exceeded my allowable contribution amount?
No, it is your sole responsibility to keep track of the amounts deposited and spent from your account, just like a normal savings or checking account.
Do I have to have my HSA with the same company that has my HDHP?
No. You may open your HSA with any qualified financial institution, regardless of which insurance company provides your HDHP. However, you should check with your benefits department, as they might only provide contributions via payroll deduction with ARCUS Financial Bank.
Health Plan and Employment Changes
I no longer participate in a qualified HDHP. Can I still receive tax-free distributions to reimburse my or my family's qualified expenses?
Yes. Participation in a qualified HDHP is not required to receive distributions. In order to maintain the tax-free status of the distribution, funds must be used for qualified medical expenses. You may not continue to make contributions to your HSA, however, until you re-establish coverage under an HSA-compatible HDHP.
What happens to my HSA if I quit my job or otherwise leave my employer?
Your HSA is portable. This means that you can take your HSA with you when you leave and continue to use the funds you have accumulated. Funds left in your account continue to grow tax-free. If you are covered by a qualified HDHP, you can even continue to make tax-deductible contributions to your HSA.
Do I need to elect COBRA to continue my HSA if I leave my current employer?
While you do not need to continue your qualified HDHP coverage through COBRA, you must maintain qualified HDHP coverage to continue making contributions. You may pay your COBRA premiums with tax-free HSA dollars should you wish.
Your HSA is not subject to COBRA provisions. It is your account to take with you and to maintain as you choose.
I have an HSA from my previous employer. I am now enrolled in an HMO. Am I eligible to make contributions to my HSA now?
Not in most cases. However, any distributions you make from an existing HSA for qualified expenses continue to be tax-free and excludable from your gross income.
Medicare and Disability
What happens to the money in my HSA after I reach age 65?
At age 65 and older, your funds continue to be available without federal taxes or state tax (for many states) for qualified medical expenses; for instance, you may use your HSA to pay certain insurance premiums, such as Medicare Parts A and B, Medicare HMO, or your share of retiree medical coverage offered by a former employer. Funds cannot be used tax-free to purchase Medigap or Medicare supplemental policies.
If you use your funds for qualified medical expenses, the distributions from your account remain tax-free. If you use the monies for non-qualified expenses, the distribution becomes taxable, but exempt from the 10 percent penalty.
With enrollment in Medicare, you are no longer eligible to contribute to your HSA. If you reach age 65 or become disabled, you may still contribute to your HSA if you have not enrolled in Medicare. Note that enrolling in Social Security automatically enrolls one in Medicare.
What happens to the money in my HSA if I become disabled?
Building an account balance in preparation for expenses associated with disability or increasing medical usage in retirement is one of the great benefits of an HSA.
If you choose to enroll in Medicare, you are no longer eligible to contribute to your HSA, but can continue to use your funds without federal taxes or state tax (for many states) for qualified medical expenses, including payments for Medicare Parts A and B, Medicare HMO, or your share of retiree medical coverage offered by a former employer. Funds cannot be used tax-free to purchase Medigap or Medicare supplemental policies.
If you use your funds for qualified medical expenses, the distributions from your account remain tax-free. If you use the monies for non-qualified expenses, the distribution becomes taxable, but exempt for the 10 percent penalty.
I am 65 years old and eligible for Medicare, but I am still working and have elected to enroll in my employer's health plan instead of enrolling in Medicare. If I enroll in the qualified HDHP offered by my employer, am I eligible to open an HSA?
You may be. You are eligible to open and contribute to an HSA as long as you are not enrolled in benefits under Medicare and are covered by a qualified HDHP. Note that enrolling in Social Security automatically enrolls one in Medicare.
Marriage and Divorce
I am currently covered under my spouse's traditional, low-deductible health plan. If I enroll in my employer's qualified HDHP, am I eligible for an HSA?
No. You are not eligible for an HSA if you are covered by any other health plan that is not a qualified HDHP.
My spouse is contributing to a health FSA that reimburses expenses before the deductible is met. Can I make contributions to my HSA if I participate in a qualified HDHP?
No. A general-purpose health FSA or HRA that pays first-dollar benefits is the same as family coverage, because it is available to reimburse the qualified expenses of the employee and the employee's spouse and dependents. Consequently, if either you or your spouse participates in a general-purpose health FSA or HRA, neither of you will be eligible to contribute to an HSA.
Can my spouse and I have a joint HSA, like our regular checking account?
No, only one person can be named the account owner. If both you and your spouse have qualified HDHP coverage, you may each have your own account.
If both you and your spouse have family coverage under qualified high deductible health plans, the maximum total tax-deductible HSA contribution both of you can make (including employer contributions) is the IRS limit for family coverage. In 2009, that amount is $5,950. This contribution can be divided between you and your spouse however you wish. If you and/or your spouse are eligible to make catch-up contributions, you may each contribute your eligible catch-up contribution to your individual HSA.
Can I pay for my spouse's/dependent children's qualified medical expenses from my HSA even if they're not covered by a qualified HDHP?
Your HSA funds can be used to pay for out-of-pocket qualified medical expenses without federal taxes or state tax (for many states), even if the expenses are not covered by your HDHP. This includes expenses incurred by your family.
Qualified medical expenses include many items you might not expect: over-the-counter medications; dental visits; orthodontics; glasses; long-term care insurance premiums; cost of COBRA coverage; medical insurance premiums while receiving federal or state unemployment compensation and post age-65 premiums for coverage other than Medigap or Medicare supplemental plans. In addition, HSA funds may be used to pay your Medicare parts A and B premiums and for employer-sponsored retiree plans.
Both my spouse and I have HSAs. Can we use both accounts to reimburse ourselves for a qualified expense?
No, a single expense can only be reimbursed by a single account. You may however, use both accounts to reimburse yourselves for different expenses. For example, you may use your spouse's HSA to reimburse the entire family's dental expenses, yourself included, and use your HSA to cover expenses incurred prior to reaching the deductible.
How are domestic partners treated in regard to HSAs?
The IRS does not consider a domestic partner a spouse, regardless of state provisions. Thus, unless your domestic partner qualifies as your dependent under the federal tax laws, which is usually not the case, you cannot withdraw funds tax-free to pay for your domestic partner’s qualified health care expenses.
What happens to my HSA in the case of divorce?
In cases of divorce, an HSA can be transferred between spouses without taxation. This is not considered a taxable distribution. All HSA rules regarding continued tax status, contributions and distributions apply.
Death
How do I designate a beneficiary for my HSA?
You should choose a beneficiary when you set up your HSA by completing the Beneficiary Form. And as circumstances in your life change, be sure to review your beneficiary designation. You can change your beneficiary by completing a new form, found here.
What happens to my HSA when I die?
Your HSA is an inheritable account. What happens to your HSA when you die depends on who you named as your beneficiary.
- Spouse designated beneficiary. If your spouse is your designated beneficiary, the account will be treated as your spouse's HSA after your death. The account will continue to be tax-free for qualified medical distributions. If your spouse is covered by a qualified HDHP, contributions to the account may also be made on a tax-deductible basis, up to maximum annual contribution limits.
- Other than Spouse designated beneficiary. If you designate someone other than your spouse as the beneficiary of your HSA:
- The account stops being an HSA on the date of your death;
- The fair market value of the HSA becomes taxable to the beneficiary in the year in which you die (without penalties); and
- The amount taxable to a beneficiary (other than your estate) is reduced by any qualified medical expenses you incurred prior to your death that are paid from the HSA by the beneficiary within one year after the date of death.
- Your estate is the beneficiary. If your estate is the beneficiary of your HSA, the value of your account is included on your final income tax return.
Tax Considerations
How is my HSA taxed?
Contributions, investment earnings, and distributions for qualified medical expenses all are exempt from federal income tax, FICA (Social Security and Medicare) tax and state income taxes (for many states).
What does pre-tax mean?
When you participate in a payroll deduction program through your employer, deductions can be taken from your payroll before calculating your taxable federal income, FICA (Social Security and Medicare) tax and for many states, taxable state income. By taking deductions pre-tax, you reduce the dollars on which you are taxed and, as a result, reduce your total tax bill.
What is an "above the line" tax deduction?
Above the line means you will reduce your taxable income regardless of whether you itemize or use the standard deduction on your income tax form. If you contribute to your HSA with after-tax dollars, you may deduct the contribution amount, subject to the maximum annual contribution limits from your taxes at filing time.
Is there a limit on how much I may contribute to my HSA and deduct from my taxes each year?
For 2009, the combined maximum contributions to your HSA, including any made by your employer to your account, are $3,000 if you have individual coverage and $5,950 if you have family coverage. If you turn age 55 or older in 2009, you may add up to $1,000 more as a “catch up” contribution.
These amounts are valid as long as you enroll in qualified HDHP coverage before the first day of December, meaning you have held at least one full month of HDHP coverage, and so long as you continue to maintain qualified HDHP coverage for the next 12 months.
The IRS determines these maximum contribution limits annually.
If I close my HSA are there any tax penalties?
There are no tax penalties for closing an HSA. However, if you use HSA funds for other than qualified medical expenses, those distributions will be subject to ordinary income tax, and in some cases, a 10 percent penalty.
When will the 10 percent penalty be assessed for a distribution for non-qualified expenses?
The 10% penalty will be assessed for the year in which you take the distribution for non-qualified expenses. The penalty will be due and payable when you file your annual tax return.
How are distributions from my HSA taxed?
Distributions from your HSA that are used exclusively to pay for qualified medical expenses for you, your spouse, or dependents are excludable from your gross income. Your HSA funds can be used for qualified expenses and will continue to be free from federal taxes and states taxes (for many states) even if you are not currently eligible to make contributions to your HSA.
If you take a non-qualified distribution, you are subject to ordinary income tax and a 10 percent penalty tax. If you are age 65 or older, disabled, or for the year in which you die, the 10 percent penalty may not apply.
How are distributions from my HSA taxed after I am no longer eligible to contribute?
If you are no longer eligible to contribute because you are enrolled in Medicare benefits, or are no longer covered by a qualified HDHP, distributions used exclusively to pay for qualified medical expenses continue to be free from federal taxes and state taxes (for many states) and excludable from your gross income.
What tax forms will I receive to include with my annual tax filings?
Form1099-SA notifies the IRS of distributions made from your HSA during the tax year. Form 5498-SA notifies the IRS of contributions made to your HSA during the tax year. ARCUS Financial Bank will send the appropriate form(s) to you with instructions regarding the forms' use and requirements for filing our annual tax return.
What about taxes on the money in my HSA not used for medical expenses?
All the dollars in your HSA, including earnings generated on those dollars, are completely free of federal taxes and state taxes (for many states) while in your account. You may have the option of selecting your own investment option(s) for savings above the minimum required for your transactional (checking) account.
The only time tax is ever owed on principal or interest from your HSA is if the money is distributed for non-qualified expenses prior to your reaching age 65, becoming disabled or die. Even if you use the funds for non-qualified expenses after you are 65 or disabled, you will only be subject to tax on the money you withdraw without the 10 percent penalty. You can always withdraw funds to pay for qualified medical expenses at any time without tax or penalty.
What is the tax treatment of contributions made by a family member or anyone else to my HSA?
If a family member or anyone else makes a contribution to your HSA, the tax advantages apply to you and not the person making the contribution. You may deduct the contribution amount when filing your annual income taxes, in the same way you would if you had deposited the post-tax contribution on your own. All contributions to the account are combined and subject to maximum annual contribution limits.
This does not include any contributions made to your account by your employer. You do not take any deductions on contributions they make.
By what date do I have to establish my HSA in order to receive tax-free reimbursements for qualified medical expenses?
Your HSA must be established before qualified medical expenses are incurred to receive tax-free distributions.
How do I report distributions from my HSA on my tax return?
How you report your distributions depends on whether or not you use the distribution for qualified medical expenses.
If you use a distribution from your HSA for qualified medical expenses, you do not pay tax on the distribution, but you have to report the distribution on Form 8889. Follow the instructions for the form and file it with your Form 1040.
If you use a distribution from your HSA for non-qualified expenses, you must pay tax on the distribution. Report the amount on Form 8889 and file it with your Form 1040. You may have to pay an additional 10 percent tax on your taxable distribution. There is no additional tax on distributions made after the date you are disabled, reach age 65, or die.
You should consult your accountant or tax advisor to determine how and what you need to report on your tax retun(s).
I took a distribution for qualified medical expenses, what records do I need to show the IRS so that the distribution remains tax-free?
You must keep records (such as receipts) sufficient to show that:
- The distributions were exclusively to pay or reimburse qualified expenses;
- The qualified expenses had not been previously paid or reimbursed from another source; and
- The medical expenses had not been taken as an itemized deduction in any year.
- Do not send these records with your tax return. Keep them with your tax records.
You should consult your accountant or tax advisor to determine how and what you need to report on your tax retun(s).
What happens if I contribute more than my maximum annual contribution to my HSA?
If you contribute more than your maximum annual contribution to your HSA, you may withdraw the excess without penalty up until April 15 of the following year. After that time, the excess funds are subject to ordinary income and an excise tax.
You should consult your accountant or tax advisor to determine how to handle excess contributions.
If I contribute more than my maximum annual contribution can I take the full amount as an above the line deduction?
No. You cannot take the excess as an above the line deduction. You have until the filing date of your federal tax return to take a distribution of the excess contribution from your HSA without incurring a 6 percent excise tax. The amount of the excess contribution is includable in your gross income for tax purposes.
You should consult your accountant or tax advisor to determine how to handle excess contributions.
I took a distribution for a doctor's visit that I didn't know was considered preventive care. The insurance company later paid the expense, which made my mistaken distribution taxable. If I return the funds to my HSA, do I still have to include the distribution as gross income and add the 10 percent penalty when I file my taxes?
If there is clear and convincing evidence that this was a mistake, you may repay the mistaken distribution no later than April 15 following the first year that you become aware of the mistake. Under these circumstances the distribution is not included in gross income and the 10 percent penalty does not apply. You will need to keep records that demonstrate the actions you took.
You will also receive tax forms from your financial institution that show the distribution, as they will not be able to identify the funds returned as a result of the error. You should follow the instructions on the forms 1099 and 5498, your form 1040 or contact your tax advisor for assistance.
You should consult your accountant or tax advisor to determine how to handle excess contributions.
I opened my HSA with a minimum deposit when I enrolled in my HDHP. I have not yet reached my maximum annual contribution. What is the last date that I may deposit the remainder of my maximum annual contribution and still take an "above the line" deduction?
You have until April 15 of the following year to deposit the remainder of your maximum annual contribution for the current year. For example, you have until April 15, 2010 to contribute your 2009 maximum annual contribution.
Rollovers/Transfers from FSAs and HRAs
Can I roll over or transfer funds from my HSA or Medical Savings Account (or Archer MSA) into an ARCUS Financial Bank HSA?
Yes. Pre-existing HSA funds or MSA monies may be rolled into an ARCUS Financial Bank HSA and will continue their tax-free status.
Can I roll over or transfer funds from my HSA to my IRA?
No. You can only roll your HSA funds into another HSA. However, the government does allow a one-time transfer of funds from an IRA to an HSA. The transferred amount, when combined with other HSA contributions for the year, may not exceed your annual maximum contribution.
Also, after making such a transfer, you must continue to participate in a qualifying high deductible health plan for 13 consecutive months, beginning in the month of the IRA-to-HSA transfer. If you do not, you will be subject to income taxes and a 10 percent penalty tax on the transferred amount, except in the case of death or disability.
Such a transfer may be an option if you incur significant medical expenses and find yourself unable to afford to make the maximum HSA contribution.
Can I roll over or transfer funds from my IRA to my HSA?
Yes. The government does allow a one-time transfer of funds from an IRA to an HSA by 2012. The transferred amount, when combined with other HSA contributions for the year, may not exceed your annual maximum contribution.
Also, after making such a transfer, you must continue to participate in a qualifying high deductible health plan for 13 consecutive months, beginning in the month of the IRA-to-HSA transfer. If you do not, you will be subject to income taxes and a 10 percent penalty tax on the transferred amount, except in the case of death or disability.
Such a transfer may be an option if you incur significant medical expenses and find yourself unable to afford to make the maximum HSA contribution.
What are Medical Savings Accounts [MSAs], Health Reimbursement Accounts or Health Reimbursement Arrangements [HRAs], and Flexible Spending Accounts [FSAs]?
- Medical Savings Accounts (MSAs) were established before HSAs and are also known as Archer MSAs. They were made available in 1996 to self-employed individuals and employees of smaller businesses. If you have an MSA, you may transfer your funds to your HSA. You may choose to keep both an MSA and an HSA. If you contribute to your MSA, your HSA maximum annual contribution limit will be reduced by the amount of contributions to your MSA each year. At age 65, you may spend your MSA or HSA monies on whatever you choose, penalty free, but you will have to pay tax on non-qualified distributions.
- Health Reimbursement Accounts or Health Reimbursement Arrangements (HRAs) are wholly employer-owned accounts and are generally administered by the employer on a "pay-as-you-go" basis. Bookkeeping entries or accounts are established and maintained by employers on behalf of each covered employee for the purpose of paying for unreimbursed medical expenses. Often employers will allow you to roll over any money remaining in your HRA at the end of the year. However, if you leave your employer, your account generally cannot be taken with you and you may not have future access to the remaining balance.
With the Tax Relief and Health Care Act of 2006, employers may transfer HRA balances to open HSAs. Individuals may not execute a transfer on their own. - Flexible Spending Accounts (FSAs) are usually funded by you through voluntary pre-tax payroll deductions. No federal income tax, FICA (Social Security and Medicare) tax and in many states, state income tax deductions, are taken from these contributions. FSAs are established to pay for specific health care expenses that are not reimbursed by a group health plan such as eyeglasses, dental work, over-the-counter drugs, deductibles and co-payments. Your expenses and the expenses of your spouse, dependent children, and any other qualified tax dependent can be paid for using your flexible spending account.
Employers may offer FSAs as part of a cafeteria plan and have complete flexibility to offer various combinations of benefits in designing their plan. Based on previous IRS regulations, contributions remaining at the end of the plan year were forfeited under the IRS "use it or lose it" rule. Even though the IRS has extended the allowable period to beyond the end of the plan year, the "use or lose it" rule remains an integral component of any FSA. Employers must amend their plans to include the time extension beyond the end of the plan year now permitted by the IRS. The extension is not automatic. At the end of the extension period, unused funds are still forfeited.
Some employers may even contribute to the FSA, but this is not an IRS requirement. So that requests for reimbursement can be paid, employers must receive verification of the medical claims. You do not have to be covered under the employer/sponsor's health care plan, or any other health care plan to participate in an FSA.
Self-employed persons are not eligible for an FSA.
What is the difference between HSAs and other health spending accounts?
| HSA | FSA | HRA | |
|---|---|---|---|
| What does it stand for? | Health Savings Account | Flexible Spending Account | Health Reimbursement Account |
| Who do the funds belong to? | Employee | Employer | Employer |
| Who can contribute to the account? | Employer, employee, and others | Employee and employer | Employer |
| Do the funds rollover year-to-year | Yes | No. Unused funds are forfeited to the employer. | May roll over if the employer's plan permits. |
| Is the account portable between employers? | Yes | No | No |
| Can the money be invested and consumers earn interest? | Yes | No | No |
Can I have an HSA and an HRA and/or FSA?
Yes, provided that the HRA and/or FSA do not pay first-dollar for any benefit that is covered by the HDHP. In addition, there are specific rules for how these may be combined; talk with your Benefits Department or check the IRS website for full information.
How does an FSA work in conjunction with an HSA?
According to IRS rules, you must first use your HSA funds to pay for covered medical expenses that apply to the deductible in your HDHP. Your FSA may be used to reimburse dental, vision, over-the-counter medications and other expenses not covered by your HDHP and any co-payments required after you have met the deductible and before your HDHP pays 100% of covered expenses.
To be eligible for an HSA, expenses applied to the deductible must be paid by your HSA before you may use FSA dollars.
What is the difference between MSAs and HSAs?
HSAs have significant advantages over MSAs, such as:
- Everyone participating in a qualified HDHP is eligible to participate in HSAs. MSAs limit participation to self-employed individuals and employees of small employers only.
- You, your employer, family members or anyone else may contribute to your HSA. The combined total from all contributors cannot exceed your maximum annual contribution. Only you OR your employer, not both, may make contributions to an MSA in the same year.
- HSAs offer larger tax-deductible contribution limits. For an MSA, the tax-free portion is limited to 65% of the annual deductible for individual coverage and 75% of the annual deductible for family coverage.
Investing Your HSA*
May I invest my HSA dollars?
Unlike other savings accounts, the HSA has no provision insisting you “use or lose” your account dollars at the end of the year. Any funds you do not use in a given plan year remain in your interest-bearing account for future health care expenses. Over time you can build a nest egg of savings.
Additionally, once you meet a minimum balance threshold, you can elect to move some of your HSA dollars into an HSA Investment Account.*
Is the interest earned from my HSA Investment Account taxable income?
No. Contributions, interest, investment earnings and withdrawals (for qualified medical expenses) are not taxed as long as account holders meet IRS eligibility requirements. Current taxes and IRS penalties may apply to nonqualified withdrawals.
How often can I change investments?
You may make changes to your investment account as often as you like, but please keep in mind that some funds do charge short-term redemption fees to prevent market-timing practices. Please read the fund’s prospectus prior to making any changes to your account holdings.
You will have access to your HSA Investment Account online 24 hours a day and 7 days a week (other than during periods of scheduled maintenance) to make changes.
How often is my HSA Investment Account balance and activity updated?
Your HSA Investment Account is updated the evening of each day that the New York Stock Exchange was open for business.
I moved dollars from my base balance account and my account shows that it has been transferred, but I don’t see the dollars in the HSA Investment Account?
It can take anywhere from a few days to a week for you to be able to view the dollars in your investment account. When dollars are transferred through Automated Clearing House (ACH) from the Base Balance Account to your HSA Investment Account those dollars default to the Money Market Account. Since the dollars are actually purchased into the Money Market Fund a 2 day settlement period takes place.
If a new fund is added to the core group of mutual funds within the same asset class can I invest in both funds?
Yes. You may invest in one or any of the funds available in the HSA Investment Account.
How do I change my address on the HSA Investment Account?
If you are an integrated health plan member, contact your health plan’s customer service center to change your address. Non-integrated account holders should contact the ARCUS Financial Bank customer service center, found on the back of your HSA Visa® debit card or here.
Employers
As an employer, do I own my employees’ HSAs? Can I control how they spend the money in them?
No, you do not own your employees’ HSAs. The employee fully owns the contributions to the account as soon as they are deposited, just as with a personal checking or savings account to which you would deposit their compensation.
My employees want to contribute to their HSAs but want to make sure they get a tax benefit out of doing so. How does that work?
Employee contributions can be made to HSAs on either after-tax or pre-tax basis. If made on an after-tax basis they should be counted as an above-the-line deduction on their tax return, effectively making their contributions tax-deductible. If they want to make the contribution pre-tax it can be done through a Section 125 (also called a “salary reduction” or “cafeteria plan”).
How much do I have to contribute to my employees’ HSA, as an employer?
As much or as little as you want (while staying below the legal limit on annual contributions to the account).
Do HSA contributions have to be made in equal amounts each month?
No, you can contribute in a lump sum or in any amounts or frequency you wish. However, keep in mind that the funds belong to the employee after they are deposited.
As an employer, do I have to contribute the same amount to every employee’s HSA?
Employer contributions must be “comparable”, that is they must be in the same dollar amount or same percentage of the employee’s deductible for all employees in the same “class”. You can vary the level of contributions for “full-time” vs. “part-time” employees, and employees with “self-only” coverage vs. “family coverage”. You do not need to consider employees who do not have HDHP coverage as they are not eligible for HSA contributions.
Our company offers benefits through a Section 125 plan, do contributions have to be comparable under these plans as well?
Section 125 plans (also known as “salary reduction” or “cafeteria” plans) must meet a different set of rules. Under these plans, contributions (both from employer and/or employee) must meet “non-discrimination” rules. These rules require the employer to ensure that contributions do not favor higher compensated employees.
Our company wants to offer “matching” contributions, can we do that?
Yes, but your company can only offer “matching” contributions through a Section 125 plan. Remember that the non-discrimination rules still apply. The total of the employee's contribution and your contribution cannot exceed the annual maximum contribution as established by the IRS.
I don’t offer health insurance, but some of my employees have opened HSAs and I’d like to help them out, what can I do?
Your company can make pre-tax contributions to your employees’ HSAs as long as you do so for all eligible employees. However, the comparability rules apply. If you have a Section 125 plan, then the non-discrimination rules apply. The total of the employee's contribution and your contribution cannot exceed the annual maximum contribution as established by the IRS.
How are contributions treated for owners and shareholders of S corps?
Owners and officers with greater than 2% share of a Subchapter S corporation cannot make pre-tax contributions to their HSAs through the company by salary reduction. In addition, any contributions made to their HSAs by the corporation are taxable as income. However, they can make their own personal contributions to their HSAs and take the "above-the-line" deduction on their personal income taxes.
How are contributions treated for partners in a partnership or limited liability company (LLC)?
Partners in a partnership or LLC cannot make pre-tax contributions to their HSAs through the partnership by salary reduction. However, they can make their own personal contributions to their HSAs and take the "above-the-line" deduction on their personal income taxes.
May a self-employed person contribute to an HSA on a pre-tax basis?
No. Self-employed persons may not contribute to an HSA on a pre-tax basis and may not take the amount of their HSA contribution as a deduction for SECA purposes. However, they may contribute to an HSA with after-tax dollars and take the above-the-line deduction.
Additional Information
For additional general information on HSAs, please visit the U.S. Department of the Treasury HSA website or the IRS HSA website.
For additional information on qualified medical expenses, please see IRS Publication 502.
ARCUS Financial Bank and its affiliates are not providing tax advice through this website and we cannot respond to specific tax questions. Tax issues are often very dependent on the specific facts. Clients are encouraged to seek their own tax advice.
*INVESTMENTS IN MUTUAL FUNDS ARE NOT INSURED, ISSUED, OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION; NOT DEPOSITS IN OR OTHER OBLIGATIONS OF ARCUS FINANCIAL BANK AND ARE NOT GUARANTEED BY ARCUS FINANCIAL BANK; BUT ARE SUBJECT TO INVESTMENT RISKS, INCLUDING FLUCTUATIONS IN VALUE AND THE POTENTIAL LOSS OF THE PRINCIPAL AMOUNT INVESTED. INDIVIDUALS INVEST AT THEIR OWN RISK. FUND RATINGS REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND INVESTORS’ SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
Account holders should carefully consider a mutual fund’s investment objectives, risks, charges and expenses before investing. If they wish to invest in a mutual fund, they will be provided with a prospectus, which contains this and other important information. They should read the prospectus carefully before investing. Mutual funds are offered through Devenir, LLC, which is not affiliated with ARCUS Financial Bank. Devenir, LLC is a registered broker-dealer and member, FINRA and SIPC.
Additional Information
- HSA Information
- Do I qualify for an HSA?
- Evaluating HSA Plans
- ARCUS HSA Features
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Ready to Setup an HSA?
Additional Information
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