Health Savings Account - Publication 969 - QuickFInder 4-16
HSA Cheat Sheet
1. Eligibility Requirements
-You are covered by a High Deductible Health Plan
-You have no other health coverage besides the HDHP
You can still be an eligible individual even if your spouse has non-HDHP coverage provided you aren’t covered by that plan.
-You cannot be enrolled in Medicare
-You cannot be claimed as a dependent on someone else’s tax return
2. Last-Month Rule
-If you were, or were considered under the last-month rule an eligible individual for the entire year and didn’t change your type of coverage, you can contribute the full amount based on your type of coverage.
-Last-month rule - If you are an eligible individual on the first day of the last month of your tax year (usually December 1st), you are considered an eligible individual for the entire year.
Testing period - If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month (for example, December 1, 2017, through December 31, 2018).
3. Rules for married people.
-If each spouse has family coverage under a separate plan, the contribution limit for 2019 is $6,900 combined.
The contribution limit is split equally between the spouses unless you agree on a different division.
-If both spouses are over age 55, each spouse may make a catch-up contribution
Each catch-up contribution must be contributed by each spouse to their own HSA.
4. Contributions
-Contributions made to an employer cafeteria plan avoid ordinary income and FICA taxes
-Contributions made to an outside HSA account are tax deductible
Taxpayer must complete IRS Form 8889 to take deduction
-Once in a lifetime IRA to HSA transfer allowed if taxpayer is an eligible individual
5. Distributions
-Distributions used to pay qualified medical expenses are tax and penalty free.
Qualified medical expenses are those expenses that generally would qualify for the medical and dental expenses deduction. These are explained in IRS Pub. 502.
-Non-qualified distributions are subject to ordinary income tax and a 20% tax penalty.
-Once you reach age 65 if distributions are not used to pay medical expenses they are not subject to the 20% penalty but are still taxed as ordinary income.
For additional information see IRS Publication 969
What are the eligibility requirements for establishing an HSA?
Qualifying for an HSA - To be an eligible individual and qualify for an HSA, you must meet the following requirements. You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month.
You have no other health coverage except what is permitted under Other health coverage, later.
You are not enrolled in Medicare.
You cannot be claimed as a dependent on someone else's 2017 tax return.
Publication 969 - Page 3
What are the maximum annual contribution amounts?
For 2017, if you have self-only HDHP coverage, you can contribute up to $3,400. If you have family HDHP coverage, you can contribute up to $6,750.
https://www.irs.gov/publications/p969#en_US_2016_publink1000204046
What is considered a HDHP?
A plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more health care costs yourself before the insurance company starts to pay its share (your deductible). A high deductible plan (HDHP) can be combined with a health savings account (HSA), allowing you to pay for certain medical expenses with money free from federal taxes.
The IRS defines a high deductible health plan as any plan with a deductible of at least $1,350 for an individual or $2,700 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $6,650 for an individual or $13,300 for a family. (This limit doesn't apply to out-of-network services.)
https://www.healthcare.gov/glossary/high-deductible-health-plan/
Can you roll money from an IRA into an HSA?
Notice 2008-51
Health Savings Accounts
Section 307 of the Health Opportunity Patient Empowerment Act of 2006 (the Act) added § 408(d)(9) to the Internal Revenue Code. The Act is part of the Tax Relief and Health Care Act of 2006, enacted December 20, 2006, Pub. L. No. 109-432. This notice provides guidance on a qualified HSA funding distribution from an individual’s Individual Retirement Account (IRA) or Roth IRA to a Health Savings Account (HSA). The qualified HSA funding distribution is a one-time transfer from an individual’s IRA to his or her HSA and generally excluded from gross income and is not subject to the 10 percent additional tax under § 72(t)
Once in a lifetime opportunity to roll money from IRA to HSA. Roth and TRAD are eligible not SEP or SIMPLE.
Publication 969 - page 6
Form 8889. Report all contributions to your HSA on Form 8889 and file it with your Form 1040 or Form 1040NR.
Additional tax - There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR.
Max contribution and if employer puts money in then the employee can make up the difference. You can make only one qualified HSA funding distribution during your lifetime. However, if you make a distribution during a month when you have self-only HDHP coverage, you can make another qualified HSA funding distribution in a later month in that tax year if you change to family HDHP coverage. The total qualified HSA funding distribution cannot be more than the contribution limit for family HDHP coverage plus any additional contribution to which you are entitled.
How is a HSA taxed upon distribution?
Distributions may be tax free if you pay qualified medical expenses. The IRS requires you to prepare Form 8889 and attach it to your tax return when you take a distribution from an HSA. However, if your 1099-SA indicates you did not use the distribution for qualified medical expenses, you will pay income tax on the portion you used for unqualified expenses. You report the taxable amount on the “other income” line of your tax return and write “HSA” beside it. You will also have to pay an additional tax of 20 percent on the taxable portion of your distribution, which you’ll calculate on Form 8889
What is a qualified medical expense?
Qualified medical expenses. - Qualified medical expenses are those expenses that generally would qualify for the medical and dental expenses deduction. These are explained in Pub. 502, Medical and Dental Expenses. Also, non-prescription medicines (other than insulin) aren’t considered qualified medical expenses for HSA purposes.
A medicine or drug will be a qualified medical expense for HSA purposes only if the medicine or drug:
1. Requires a prescription,
2. Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or
3. Is insulin. For HSA purposes, expenses incurred before you establish your HSA aren’t qualified medical expenses. State law determines when an HSA is established. An HSA that is funded by amounts rolled over from an Archer MSA or another HSA is established on the date the prior account was established.
Will an employer contribution reduce the amount that and individual may contribute?
Your maximum contribution is reduced by any employer contributions to your HSA, any contributions made to your Archer MSA, and any qualified HSA funding distributions.
You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you don’t itemize your deductions on Schedule A (Form 1040).
Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income. The contributions remain in your account until you use them.
The interest or other earnings on the assets in the account are tax free. Distributions may be tax free if you pay qualified medical expenses.
Publication 969 and Form 8889
How do I report a contribution to a HSA?
In most cases, your HSA contribution is reported in Box 12 of your W-2 with the code W (Employer Contributions to Health Savings Account).
If it is not deducted pretax from your W2 then you will need to take an above the line contribution for after tax contributions and you miss out on the saving of FICA but you still have the tax reduction.
Tip: Code W actually reports the combined contribution – yours plus your employer's. So if you contributed $1,500 to your HSA and your employer matched it dollar for dollar, Box 12 on your W-2 would show $3,000 with a code W.