Health Savings Account
A Health Savings Account (HSA) is a special tax-advantaged savings account designed to cover current and future medical expenses for individuals and families covered by a High Deductible Health Plan (HDHP). You are the owner of your HSA and make decisions regarding contributions and distributions, allowing more control over how your health care dollars are spent. Unspent dollars may accumulate year after year.
Who Can Have an HSA?
You can open and contribute to an HSA if you:
- Are age 18 or older.
- Are covered by an HSA-qualified "High Deductible Health Plan" (HDHP).
- Are not covered by a non-HDHP that provides any benefit that is also covered by your HDHP.
- Are not enrolled in Medicare.
- Cannot be claimed as a dependent on someone else's tax return.
Is an HSA right for you?
You may want to consider an HSA if:
- You are self-insured or self-employed and want a cost-effective health insurance solution that also helps you to build financial security.
- You are a business owner and want to offer this alternative to your employees, while lowering your overall insurance costs
- You currently participate or are thinking of participating in a HDHP.
What is a High Deductible Health Plan (HDHP)?
An HDHP is a health plan that has a minimum deductible and an out-of-pocket maximum amount that meet government requirements. These amounts will be adjusted for inflation each year.
For the 2015 calendar year, the following HDHP amounts apply:
Type of Coverage 2015 Minimum Deductible 2015 Maximum Out-of-Pocket Expense Self-Only $1,300 $6,400 Family $2,600 $12,900
In general, the deductible must apply to all medical expenses (including prescriptions) covered by the plan. However, plans can pay for "preventive care" services on a first-dollar basis (with or without a co-pay). "Preventive care" can include routine pre-natal and well-child care, child and adult immunizations, annual physicals, mammograms, pap smears, etc.
For more specific information, check with your health plan representative, insurance agent or benefits plan specialist, or visit the U.S. Department of Treasury website at www.treasury.gov.
Who can make contributions to an HSA?
You can make a contribution to your HSA each year that you are eligible. Contributions to your HSA can be made by you, your employer, or both. However, the total contributions are limited annually (see chart below). If you make a contribution, you can deduct the contributions (even if you do not itemize deductions) when completing your federal income tax return.
Individuals age 55 and older can also make additional "catch-up" contributions.
Contributions to your HSA must stop once you are enrolled in Medicare. However, you can keep the money in your account and use it to pay for future qualified medical expenses tax-free.
Health Savings Account Annual Contribution Limits:
Tax Year HDHP Coverage Standard Contribution Limit Catch-Up Contribution Limit (age 55+) Total Contribution Limit (age 55+) 2015 Self-Only $3,350 $1,000 $4,350 Family $6,650 $1,000 $7,650
Contributions can be made as late as April 15 for the prior tax year.
Using Your HSA
You can use the money in your HSA to pay for any "qualified medical expense" permitted under federal tax law. This includes most medical care and services, dental and vision care, and prescription drugs.
You generally cannot use the money to pay for medical insurance premiums, except under specific circumstances, including:
- Any health plan coverage while receiving federal or state unemployment benefits.
- COBRA continuation coverage after leaving employment with a company that offers health insurance coverage.
- Qualified long-term care insurance.
- Medicare premiums and out-of-pocket expenses, including deductibles, co-pays, and coinsurance for:
- Part A (hospital and inpatient services)
- Part B (physician and outpatient services)
- Part C (Medicare HMO and PPO plans)
- Part D (prescription drugs)
You can use the money in your HSA to pay for medical expenses for yourself, your spouse, or your dependent children. You can pay for expenses of your spouse and dependent children even if they are not covered by your HDHP.
Any amounts used for purposes other than to pay for "qualified medical expenses" are taxable as income and subject to an additional 20% tax penalty. Examples include:
- Medical expenses that are not considered "qualified medical expenses" under federal tax law (e.g., cosmetic surgery).
- Other types of health insurance unless specifically described above.
- Medicare supplement insurance premiums.
- Expenses that are not medical or health-related.
After you turn age 65, the additional tax penalty no longer applies. If you become disabled and/or enroll in Medicare, your HSA can be used for other purposes without paying the additional penalty. However, withdrawals that are not used for qualifying medical expenses will be considered taxable income.
What are the Advantages of an HSA
Your high deductible insurance and HSA protect you against high or unexpected medical bills.
You can reduce your health insurance premiums by choosing a HDHP. Instead of paying higher premiums, pay yourself by putting the premium difference into your HSA. You will have these funds for future medical expenses.
You can use the funds in your account to pay for current medical expenses, including expenses that your insurance may not cover, or save the money in your account for future needs, such as:
- Health insurance or medical expenses if unemployed and are receiving Federal or State unemployment benefits.
- Medical expenses after retirement (before Medicare).
- Out-of-pocket expenses when covered by Medicare.
- Long-term care expenses and insurance.
You make all the decisions about:
- How much money to put into your HSA.
- Whether to save the funds in your HSA for future expenses or pay current medical expenses.
- Which medical expenses to pay from your HSA.
- Which financial institution will hold your HSA.
You own the money in your HSA. Funds remain in the account from year to year. There are no "use it or lose it" rules for HSAs.
Accounts are completely portable, meaning you keep your HSA even if you:
- Change jobs.
- Change your medical coverage.
- Become unemployed.
- Move to another state.
- Change your marital status.
An HSA provides you triple tax savings:
- You can deduct your contributions on your tax return,
- Your earnings are tax-free; and,
- Your withdrawals are tax-free when used for qualified medical expenses.
Funds left to accumulate in your HSA, including interest, grow tax free. Withdrawals for eligible medical expenses are never taxed.
What Happens to my HSA When I Die?
If your spouse becomes the owner of the account, your spouse can use it as if it were their own HSA. If you are not married, the account will no longer be treated as an HSA upon your death. The account will pass to your beneficiary or become part of your estate (and be subject to any applicable taxes).
It's easy to make deposits to your HSA.
You have several convenient deposit options:
- In person at any Salisbury Bank branch.
- By payroll direct deposit.
- By automatic transfer from another Salisbury Bank deposit account.
- By transferring funds from another Salisbury Bank deposit account via Bank-By-Phone or e-Banking.
- Your employer may also make deposits to your HSA on your behalf as part of your employee benefits program.
It's easy to pay for medical expenses from your HSA.
You can pay for qualified medical expenses using the funds in your HSA by simply writing a check, using your Health Savings Account Debit MasterCard®, or paying your bills online with our convenient Online Bill Pay service.
It's easy to manage your Salisbury Bank HSA.
Keeping accurate records of contributions and withdrawals, including receipts for all expenses is your responsibility. To assist you with recordkeeping, Salisbury Bank will provide you with monthly statements showing all of your HSA contributions and payments. In the event of an IRS audit, the monthly statements will provide the images of cancelled checks along with a detailed transaction history that includes debit and online bill payments.
It's easy to open an HSA
It's easy to open a Health Savings Account at Salisbury Bank. Simply stop by your nearest branch, or call 860.435.9801.
Salisbury Bank also has HSA application packages available for employers who offer High Deductible Health Plans to their employees. It's easy for employees to sign up for HSAs right at work.