Here are a few things you should know about Health Savings Accounts (HSAs) for 2016.
If you have an HSA-eligible health plan, you can open an HSA and deposit a certain amount of money into it per year on a pre-tax or tax-deductible basis to pay for qualified medical expenses. Money in the account is yours to keep and can roll over and grow from year to year.
Because they allow you to save money for medical expenses on a tax-deductible basis, and because their monthly premiums are often a little lower than other plans, HSA-eligible health insurance plan can really help you save money.
Here’s what you need to know about HSA rules and coverage for 2018:
Health Savings Accounts for 2018
• Minimum deductible requirements: In order to qualify for use with an HSA, your health insurance plan must have an annual deductible of at least $1,350 for individual coverage or $2,700 for family coverage.
• Maximum out-of-pocket requirements: In order to qualify for use with an HSA, your health plan must have a maximum out-of-pocket amount of no more than $4,500 for individuals or $8,250 for families according to the IRS.
• Contribution limits: The maximum amount that can be contributed to a Health Savings Account for 2016 is $3,450 for individual coverage or $6,900 for family coverage.
• HSA “catch up” contributions for people age 55+: IRS rules allow people age 55 or more to contribute an extra $1,000 per year to their HSA. Extra contributions can be made at any time during the year in which you turn 55.
• Tax penalty for misuse of funds: Use of HSA funds for anything other than qualified medical expenses results in the funds used being taxed as income. They will also be subject to a 20% tax penalty.
• When you can contribute: You can only contribute money to your HSA if you are currently enrolled in a qualified plan.
• Using HSA funds: You can use funds from your HSA for qualified medical expenses at any time, even if you are no longer enrolled in an HSA-eligible plan, and even if you’re retired and on Medicare.
• What can you expense in a year: Though there are some exceptions, you can typically only use your HSA funds for medical and dental expenses paid in that year, regardless of when the services were provided.
• Who can you expense for: Spouses or dependents, as long as they were a dependent at the time you paid the bill.
• Qualifying medical expenses: Some of the things you can pay for on a tax-advantaged basis with HSA funds include copayments and deductibles, prescription drugs, dental and vision care, and unexpected things like acupuncture and chiropractic care, LASIK surgery, and some fertility enhancements. Refer to IRS Publication 502 for a complete list.
• Other things to know: You can generally contribute funds to you HSA prior to April 15 and have it reflected on your taxable income for the prior year. You cannot use funds in an HSA to pay for expenses incurred prior to the date on which the HSA was opened.