What are the requirements of an HDHP?

  • Deductible Requirements Minimums for Tax Year 2019: $1,350 for Single, $2,700 for Family
  • Maximum Out-of-Pocket for Tax Year 2019: $6,750 for Single, $13,500 for Family
  • Annual Contribution Maximum for Tax Year 2019: $3,500 Single, $7,000 Family

After a qualified HDHP has been put into place, an employer decides if they are going to fund a portion of the deductible for the employee. Whatever portion of the deductible is not funded by the employer, the employee has the opportunity to contribute to the HSA to make up the difference. Contributions can be made according the schedule below.

What is the contribution schedule?

Health Savings Accounts (HSA) provide tax benefits for the funds that you contribute. However, the Internal Revenue Service limits the amount you are able to contribute to an HSA for each tax year. If you contribute more than the IRS allows, you could incur tax penalties. To avoid making excess contributions, coordinate your contributions with any other contributions that are being made to your account by an employer or another third-party.

  • Contributions can be made by: Account holders / Individuals, Employers, Any other third party.
  • Contributions are tax-deductible for the account holder. Employer contributions and employee contributions through a Section 125 Plan are pre-tax.
  • Contributions made to an account holder’s account belong to the account holder until the funds are used (please see the Distributions section below).
  • Employer contributions must be made on a comparable basis.

What are the limits?

The Internal Revenue Service (IRS) reviews and determines the HSA contribution limits on an annual basis. An account holder is able to contribute 100% of their qualified HDHP deductible up to the IRS contribution limit. The limits for 2019 are listed above. An additional catch-up contribution of $1000 is available to individuals over the age of 55 who are not enrolled in Medicare.

Distribution

Funds can be used tax-free at any time for eligible medical expenses.

  • As of age 65, funds can be used for non-eligible medical expenses subject to ordinary income tax without any IRS penalty.
  • Prior to age 65, funds can be used for non-eligible medical expenses subject to ordinary income tax and a twenty percent IRS penalty.
  • Upon the account holder’s death, the assets in the HSA become the property of their named beneficiary. If there is no beneficiary named, the assets go to the account holder’s estate.
  • If the beneficiary is a spouse, the HSA may be treated as their own account.
  • If the beneficiary is a non-spouse, the HSA must be treated as ordinary income for taxation purposes.

Tax Advantages

Health Savings Accounts create unique tax benefits for account holders/individuals.

  • Contributions are 100% tax-deductible.
  • Funds grow on a tax-deferred basis, and if the funds are used for an eligible medical expense, the funds are tax-free.
  • Funds roll over from year to year, and funds used after age 65 are able to be used tax-free for eligible medical expenses or at your normal tax rate for any other reason.
  • Over the life of your Health Savings Account, you could save thousands of dollars in taxes.
  • Federally qualified Health Savings Accounts are tax-deductible, tax-deferred and tax-free.
  • Tax-deductible – Contributions to your HSA are able to be deducted from your gross income.
  • Tax-deferred – HSA funds grow without being subject to taxes until they are used for non-eligible medical expenses.
  • Tax-free – The funds in an HSA are completely tax-free when used for eligible medical expenses.
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