HSA Contribution Information

IRS Requirements for 2010
 

Single Plan

Family Plan
Minimum Deductible

$1,200

$2,400
Maximum Out-of-Pocket

$5,950

$11,900
Contribution Limit

$3,050

$6,150
Catch-Up Contribution (55 or older)*

$1000

$1000
* 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.

IRS Website

What is the tax treatment of my HSA contributions?
Whether or not you itemize deductions, your HSA contributions can be deducted from your adjusted gross income. Of course, you must be an eligible individual and you cannot also deduct the contributions as a medical expense deduction under section 213 of the Internal Revenue Code.
 
Is the interest earned on my contributions also tax free?
Yes, as long as you use the money in your HSA for qualified medical expenses or roll it over from year to year.
 
What is the tax treatment of contributions made by a family member on behalf of an eligible individual?
Contributions made by a family member on behalf of an eligible individual to an HSA are deductible from the adjusted gross income of the eligible individual. However, an individual who may be claimed as a dependent on another person’s tax return is not an eligible individual and may not deduct contributions to an HSA.
 
What is the tax treatment if my employer contributes to my HSA?
You cannot deduct contributions that your employer makes to your HSA on your Federal Income Tax Return. Employer contributions to an employee’s HSA are treated as employer-provided coverage for medical expenses under an accident or health plan and may be excluded from an employee’s gross income. Employer contributions are not subject to withholding from wages for income tax or subject to the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), or the Railroad Retirement Tax Act (RRTA). In addition, contributions to an employee’s HSA through a cafeteria plan are treated as employer contributions and the employee’s income will be reduced.
 
What is the tax treatment of my HSA?
Your HSA is generally exempt from tax. Earnings on your account accumulate tax free. However, this is no longer the case if your HSA ceases to be an HSA or if earnings are taken from your HSA.
 
How do I report HSA distributions on my tax return?
  • If you used a distribution from your HSA for qualified medical expenses, you do not pay tax on the distribution, but you do have to report the distribution on IRS Form 8889. Follow the instructions for the form and attach it to your IRS Form 1040.
  • If you used a distribution from your HSA for something other than qualified medical expenses, you must pay tax on the distribution and report the amount on IRS Form 8889. Follow the instructions for the form and attach it to your IRS Form 1040. You must also report and pay an additional tax on your IRS Form 1040, unless you meet one of the exceptions established by the IRS. You will need to contact the IRS or your accountant for more information on the exceptions.
  • In addition, there is a 10% additional tax on the part of your distribution that was not used for a qualified medical expense. You are required to report the additional tax in the Other Taxes section of your IRS Form 1040. Please note that there is no 10% additional tax due if you are disabled, age 65 or older, or die during the year.
 
May I add rollover contributions to my HSA?
Yes, you are allowed to add rollover contributions from Medical Savings Accounts (MSAs) and other HSAs to your HSA. Rollover contributions do not have to be cash and are subject to the annual contribution limits. Beginning with 2007, you may roll over money from an Traditional IRA, a Health Reimbursement Arrangement (HRA), or from a health Flexible Spending Account (FSA) into your HSA.
 
Are my health insurance premiums counted as qualified medical expenses?
No, in most cases, health insurance premiums, including premiums for Medigap policies, are NOT counted as qualified medical expenses for your HSA. However, the following types of health insurance premiums are exceptions and ARE considered qualified medical expenses:

  • Premiums for qualified long-term care insurance;
  • Premiums for COBRA health care continuation coverage
  • Premiums for health coverage while an individual is receiving unemployment compensation
  • For individuals over age 65, premiums for Medicare Part A or B, a Medicare HMO and employee share of premiums for employer-sponsored retiree health insurance.
 
What if I become ineligible for an HSA? How will my HSA distributions then be taxed?
As long as you use your HSA distributions only to pay for qualified medical expenses, they will continue to be excludable from your gross income even if you are no longer eligible for an HSA. This includes individuals over age 65 who are entitled to Medicare benefits or no longer have an HDHP.
 
What happens to my HSA when I die?
When you open your HSA you should specify a beneficiary. If you don’t, the fair market value of your HSA will be included on the final income tax return after your death.

  • If your spouse is your designated beneficiary of the HSA, it will be treated as your spouse’s HSA after your death.
  • If you designate someone other than your spouse as your beneficiary, then on the date of your death, the account stops being an HSA and the fair market value of the HSA becomes taxable to the designated beneficiary.
 
Where can I find Internal Revenue Service (IRS) forms and publications?
Just visit www.irs.gov.

Here are some other helpful links:

Please contact your account or tax consultant for regarding your specific tax needs and circumstances.

This document is not intended to provide tax advice.
Call your accountant &/or your HSA administrator for advice or with questions.