Frequently Asked Questions
Question
What is the tax treatment of an eligible individual's
HSA contributions?
Answer
Contributions made by an eligible individual to an HSA
are deductible by the eligible individual in determining
adjusted gross income (i.e., "above the line"). The
contributions are deductible whether or not the eligible
individual itemizes deductions. However, the individual cannot
also deduct the contributions as medical expense deductions
under section 213. (Notice 2004-2, Q-A #17)
Question
How does an eligible individual establish an HSA?
Answer
An eligible individual can establish an HSA with a
qualified HSA trustee or custodian. No permission or
authorization from the IRS is necessary to establish an HSA.
(Notice 2004-2, Q-A #8). An HSA is considered established based on state tax law. In many states, the account must be funded before it is considered established. The establishment date is used to determine when distibutions can be reimbursed from the HSA for tax purposes.
Question
Are employer contributions comparable if the employer
contributes the same amount of dollars per payroll to each
employee whereby employees employed for a longer length of time
will have more contributions at the end of the year?
Answer
Calculating comparability monthly is acceptable. (IRS
Response 4-7-04)
Question
What other kinds of health coverage may an individual
maintain without losing eligibility for an HSA?
Answer
An individual does not fail to be eligible for an HSA
merely because, in addition to an HDHP, the individual has
coverage for any benefit provided by "permitted insurance".
Permitted insurance is insurance under which substantially all
of the coverage provided relates to liabilities incurred under
workers' compensation laws, tort liabilities, liabilities
relating to ownership or use of property, insurance for a
specified disease or illness and insurance that pays a fixed
amount per day of hospitalization. Also, an individual does not
fail to be eligible for an HSA merely because they have coverage
for accidents, disability, dental care, vision care or long-term
care. (Notice 2004-2, Q-A #6)
Question
When is an individual permitted to receive
distributions from an HSA?
Answer
An individual is permitted to receive distributions
from an HSA at any time after the HSA has been established.
(Notice 2004-2, Q-A #24)
Question
A husband and wife are covered under a qualified HDHP
with family coverage with a $2200 deductible. They file taxes
separately. Each has an HSA and contributes 1/2 of the allowed
maximum. The husband meets the full $2200 deductible with
medical expenses. Would distributions from both HSAs to cover
the qualified expenses for the husband be qualified
distributions?
Answer
No. To use the distributions for each others expenses,
the husband and wife must file a joint return (Notice 2004-50,
Q:A-38)
Question
An employee and spouse each has a separate individual
HDHP with a $3,000 deductible for each plan. What is the maximum
tax deduction if they file jointly or separately?
Answer
Each can deduct $2,850 ($5,700 on a joint return) in
2007 or $2,900 ($5,800 on a joint return) in 2008, but only if
they have separate individual coverage. (Updated for inflation,
based on IRS Response, August 6, 2004)
Question
An individual is covered by a qualified HDHP with a
$5,000 deductible with family coverage. The dependents under the
plan are not allowable dependents for tax purposes (i.e.
domestic partner's children who are claimed on ex-spouses tax
return). What is the maximum contribution for the accountholder?
Answer
The maximum contribution for the accountholder in this
scenario is based on the family maximum. Contribution limits are
determined by the plan, not the tax status of dependents. A plan
is considered family coverage if at least one eligible
individual and another individual are covered by the plan.
(Notice 2004-50, Q:A-31)
Question
When may HSA contributions be made?
Answer
Contributions for the taxable year can be made in one
or more payments, at the convenience of the individual or the
employer, at any time prior to the time prescribed by law,
typically April 15th,(without extensions) for filing the
eligible individual's federal income tax return for that year,
but not before the beginning of that year. (Notice 2004-2, Q-A
#21)
Question
How much may be contributed to an HSA?
Answer
For the 2008 tax year, the maximum contribution is set
to the statutory maximum of $2,900 for single coverage and
$5,800 for family coverage and does not need to be prorated as
long as you meet the appropriate testing period. A tax penalty
applies if you do not meet the appropriate testing period
requirements. In addition to the maximum contribution amount,
catch-up contributions of $900 may be made by or on behalf of
individuals age 55+ and younger than 65. In 2009, the statutory
maximum is $3,000 for single coverage and $5,950 for family
coverage. The catch-up contribution amount is $1,000. (Based on
legislative text: Tax Relief and Health Care Act of 2006,
Section 303 & 305.)
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