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Health Savings Account (HSA)

Health Reimbursement Arrangement (HRA)

General Description

HSAs are tax favored “IRA-type” accounts. Individuals covered by certain high deductible health plans (HDHPs) can establish an HSA to pay for qualified medical expenses of eligible individuals, spouses, and/or tax dependents.

Also called “defined contribution” or “personal care” accounts, these employer-funded accounts pay employees for reimbursed medical expenses.

Eligibility 

  • An individual who is covered by a qualified HDHP and has no other disqualifying coverage

  • A qualified HDHP is a health plan with an annual minimum deductible of $1,350 for individual coverage or $2,700 for family coverage.

  • Qualified HDHP plans have a cap on out-of-pocket expenses (including the deductible) of $7,900 per individual or $15,800 per family.

  • An employee whose employer offers an HRA

  • May be offered in conjunction with a HDHP or other type of health plan

Who Can Contribute?

Employee, employer, both, or other individual(s) making qualified contributions on behalf of the employee

Employer only

Contribution Limits

Individual Coverage:  $3,500 (2019)

Family Coverage:  $7,000 (2019)

55+ Catchup:  $1,000

No federal income tax law limits

Employer sets the contribution limits.

Distributions for Medical Expenses

Distributions may be made for qualified medical expenses. Eligible expenses are those identified in the IRC section 213(d). Distributions for non-qualified medical expenses are subject to 20% penalty tax and will be considered income for tax purposes.

Distributions may be made for qualified medical expenses. Eligible expenses are those identified in the Internal Revenue Code section 213(d).

Claim substantiation is required.

Tax Benefits

  • Employee contributions to an HSA are tax deductible.

  • Money contributed to an HSA accumulates on a tax-deferred basis.

  • Distributions from an HSA are tax-free when used to pay for qualified medical expenses.

Employer contributions are excluded from employee’s gross income.

Carryover of Funds & Portability

  • Amounts not used for medical expenses at the end of the year may be carried over to future years.

  • HSAs are portable. Employees may take their funds in their account when they leave the company.
  • Amounts not used for medical expenses at the end of the year are not carried over to future years. Limits may be imposed by plan design.

  • Account is not portable. Funds stay with the employer when the employee leaves the company.

This chart is for informational purposes only. The contents are not intended to serve as tax, legal, or business management advice.

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