How are HSA distributions taxed?
How do I claim the Federal Tax Deduction for my HSA Contributions?
The qualified medical expenses must be incurred after the HSA has been established.
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 20 percent tax unless made after your death, your disability, or after age 65.
HSA custodians are not required to determine whether HSA distributions are used for qualified medical expenses.
How do I use my HSA checks?
New contributions to an HSA may be fully deductible, the earnings grow tax deferred, and distributions to pay or reimburse qualified medical expenses are tax free. 3 Rollovers and transfers from HSAs, IRAs, Archer medical savings accounts are not deductible. The deadline for regular and catch-up HSA contributions is your federal income tax return due date, excluding extensions, for that taxable year, typically April 15.
How do you pay for expenses?
Check writing capabilities offer customers immediate access to their Health Savings Account, so you don’t have to wait to get reimbursed by a third party administrator or an insurance company. The checks should only be used for medical purchases or medical services. A listing of qualified medical expenses can be found in IRS Publication 502. Check purchases are limited only by your available account balance. 3
How else can I access my account?
You can pay for eligible medical expenses with your Free HSA Debit Card or by check.
How much can I contribute?
Transfers, deposits and inquiries may be made 24/7 through our Phone and Online Banking services.
- Phone Banking: 1-800-763-0555
- Mobile Banking
- Online Banking
For more information including qualified medical expenses, contact your local banker.
What is an HSA?
If you are eligible, you can establish an HSA in much the same way you would establish an IRA – with a qualified 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. (include chart from HSA brochure)
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.
If you meet the eligibility requirements for an HSA, you, your employer, your family members, and any other person (including non-individuals) may contribute to your HSA. This is true whether you are self-employed or unemployed.
What limits apply?
HSA’s are tax-exempt custodial accounts established exclusively for the purpose of paying for reimbursing qualified medical expenses by you, your spouse or your dependents.
An HSA plan has 2 components:
- A qualified high deductible health insurance plan (HDHP)
- An HSA at a financial institution
- This account is designed to pay for routine medical expenses and/or provide savings for the future. Money put into the account can be used either during the year or accumulated.
Allowable medical expenses are defined by the IRS and are much broader than most providers (i.e. includes dental, vision). Individuals can deduct dollars contributed to the HSA account from their gross income, resulting in tax-free medical dollars. 1 HSA premiums are lower than other fully-insured plans with co-pays. The account is similar to an IRA account; however, it is for qualified medical expenses only.
Where is my HSA card accepted?
There are no limits on the number of transactions per day. However, PIN and signature-based transactions cannot exceed $2,000 per day 2.
Who is eligible?
Your debit card is accepted at any medical service/product provider (e.g., doctor’s offices, pharmacies, medical supply stores). This cannot be used as an ATM card. Your card should only be used to pay for qualified medical expenses. If you use the card to pay for non-qualified medical expenses, you may be subject to income tax on those funds and IRS penalties.
You are eligible for HSA contributions if you:
- Are covered under a high-deductible health plan (HDHP)
- Are not also covered by any other health plan that is not an HDHP (with certain exceptions for plans providing preventive care and limited types of permitted insurance and permitted coverage)
- Are not enrolled in Medicare
- Cannot be claimed as a dependent on another individual’s tax return
Note: A spouse can have single coverage under an HSA, if they are not covered under the other spouse’s plan. The account however, is for the individual covered under the HSA qualified plan only. Your insurance provider must be able to verify that your plan is a qualified HDHP.
HSA rules are determined at the federal level. Individuals may be eligible under state guidelines (domestic partners, civil unions, etc.) for qualified health insurance coverage, but not eligible to open the savings account portion of the plan.