Health Savings Accounts (HSAs) were created as a tax-favored framework to provide
health care benefits mainly for small business owners, the self-employed, and
employees of small to medium-size companies.
The tax benefits of HSAs are quite favorable and substantial. Eligible individuals can
make tax-deductible (as an adjustment to AGI) contributions into HSA accounts. The
funds in the account may be invested (somewhat like an IRA), so there is an
opportunity for growth. The earnings inside the HSA are free from federal income tax,
and funds withdrawn to pay eligible health care costs are tax-free.
An HSA is a tax-exempt trust or custodial account established exclusively for paying
qualified medical expenses of the participant who, for the months for which
contributions are made to an HSA, is covered under a high-deductible health plan.
Consequently, an HSA is not insurance; it is an account, which must be opened with a
bank, brokerage firm, or other provider (i.e., insurance company). It is therefore
different from a Flexible Spending Account in that it involves an outside provider
serving as a custodian or trustee.
The 2015 maximum contribution and deduction for individual self-only coverage under a
high-deductible plan is $3,350, while the comparable amount for family coverage is
$6,650. Individuals age 55 or older by the end of 2015 are allowed additional
contributions and deductions of $1,000. However, when an individual enrolls in
Medicare, contributions cannot be made to an HSA.
For 2015, a high-deductible health plan is defined as a health plan with an annual
deductible that is not less than $1,300 for self-only coverage and $2,600 for family
coverage, and the annual out-of-pocket expenses (including deductibles and
copayments, but not premiums) must not exceed $6,450 for self-only coverage or
$12,900 for family coverage.
This publication is distributed with the understanding that the author, publisher and
distributor are not rendering legal, accounting or other professional advice or
opinions on specific facts or matters, and, accordingly, assume no liability
whatsoever in connection with its use. The information contained in this newsletter
was not intended or written to be used and cannot be used for the purpose of (1)
avoiding tax-related penalties prescribed by the Internal Revenue Code or (2)
promoting or marketing any tax-related matter addressed herein. © 2015