What is a Health Savings Account?
A Health Savings Account (HSA) is a tax-exempt trust or custodial account established exclusively for the purpose of paying or reimbursing qualified medical expenses of you, your spouse, and your dependents.
Am I Eligible for a HSA?
You are eligible for a regular HSA contribution if, with respect to any month, you:
What is a HDHP?
A High Deductible Health Plan is a plan with an annual deductible no less than the amounts shown in the chart that follows:
|HDHP Annual Deductible|
|Tax Year||2020||2021||2022 & Later|
Are There Other Requirements for the HDHP?
Yes. For HSA purposes, the HDHP must limit out-of-pocket expenses to no more than the amounts shown in the chart that follows:
|Maximum Out-of-Pocket Expenses|
|Tax year||2020||2021||2022 & Later|
What are a HSA Owner's Responsibilities?
If you are eligible, you can establish a HSA in much the same way you would establish an IRA - with a qualified trustee or custodian. Each year, you are responsible for determining your allowable annual HSA contribution and whether you have qualified medical expenses eligible for reimbursement with nontaxable HSA distributions.
Determining your eligibility to establish a HSA and determining your allowable contributions and distributions may require the guidance of a tax or legal professional. Your HSA custodian/trustee is not responsible for the determination of your allowable HSA contributions or whether you have qualified medical expenses.
Who Can Contribute to My HSA?
If you meet the eligibility requirements for a HSA, you, your employer, your family members, and any other person (including nonindividuals) may contribute to your HSA. This is true whether you are self-employed or unemployed.
How Much Can I Contribute to My HSA?
The maximum annual contribution amount is the standard limit as shown in the chart below.
Additionally, a "catch-up" contribution is available for eligible individuals who are age 55 or older by the end of their taxable year and have not enrolled in Medicare. The chart that follows shows the contribution limits:
|Tax Year||2020||2021||2022 and later|
|Standard Limit||Self Only||$3,550||$3,600||$3,600*|
|Additional Catch-up Contribution Amount for ages 55+||$1,000||$1,000||$1,000*|
What are the Federal Tax Benefits of a HSA?
Contributions to a HSA are fully deductible, the earnings grow tax deferred, and distributions for qualified medical expenses are tax free. Consult with your tax or legal professional for guidance.
How Do I Claim the Federal Tax Deduction for My HSA Contribution?
You may deduct contributions made by anyone other than your employer as long as they do not exceed the maximum annual contribution amount. Employer contributions are not wages for federal income tax purposes.
When is the Contribution Deadline for Funding a HSA?
The deadline for regular and catch-up HSA contributions is your federal income tax return due date, excluding extensions, for that taxable year. The due date for most taxpayers is April 15.
How are HSA Distributions Taxed?
HSA distributions used exclusively to pay for or reimburse qualified medical expenses incurred by you, your spouse, or your dependents are not included in gross income.
Any other distributions are included in income unless rolled over. Distributions not used to pay for or reimburse qualified medical expenses, or not rolled over, are subject to an additional 10 percent tax unless made after your death, your disability, or your attainment of age 65.
HSA custodians/trustees are not required to determine whether HSA distributions are used for qualified medical expenses.
The Internal Revenue Service (IRS) released Notice 2004-25 providing transition relief for calendar-year 2004 for eligible individuals who establish a HSA on or before April 15, 2005, from the requirement that qualified medical expenses may only be paid or reimbursed by a HSA if incurred after the HSA has been established.
How is HSA Activity Reported?
Each year, your HSA custodian/trustee reports to the IRS on IRS Form 5498 SA the contributions made to your HSA and on IRS Form 1099 SA any HSA distributions you take. In addition, you file IRS Form 8889, Health Savings Accounts (HSAs), as part of your federal income tax return to show your HSA contribution and distribution activity.
What Happens to My HSA in the Event of My Death?
If your spouse is the beneficiary of your HSA, the HSA becomes his/her HSA.
If your beneficiary is not your spouse, the HSA ceases to be a HSA as of the date of your death. If your beneficiary is your estate, the fair market value of the HSA as of the date of your death is included as income on your final income tax return. For other beneficiaries, the Fair market value of your HSA is included as income for the recipient in the tax year of your death.
Need More Information about HSA's?
The Treasury's web site has additional information about Health Savings Accounts, including answers to frequently asked questions, related IRS forms and publications, technical guidance, and links to other helpful web sites. Treasury's HSA website can be found through www.treas.gov, (click on "Health Savings Accounts") or directly at the following address: http://www.treasury.gov/resource-center/faqs/Taxes/Pages/Health-Savings-Accounts.aspx.
This Web page is effective for tax-year 2020 and thereafter. This page is intended to provide general information concerning federal tax laws governing HSA's. It is not intended to provide legal advice or to be a detailed explanation of the rules or how such rules may apply to your individual circumstances. For specific information, you are encouraged to consult your tax or legal professional. IRS Publication 969, Health Savings Accounts and other Tax Favored Health Plans and the IRS's web site, www.irs.gov, may also provide helpful information.
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