Employers who offer health benefits typically offer HSAs to their employees. HSA stands for a health savings account and allows employees to contribute tax-free contributions toward a high-deductible health plan. Employers can elect to match or contribute to their employees’ health savings accounts and these contributions are not taxable under federal law. Plus, HSA funds roll over from year to year and will follow an employee from company to company. Let’s take a look at some common questions about HSAs.
How much can I contribute to an HSA?
Individuals can contribute $3,500 a year, and family coverage is capped at $7,000. But in order to contribute to an HSA, employees must be enrolled in a high-deductible health insurance plan. For individuals, the minimum annual deductible is $1,350 and the maximum is $6,750. For family plans, the minimum annual deductible is $2,700 and the maximum is $13,500.
Employees’ contributions aren't set in stone either. Employees can change their contribution amount at any point in the year on a monthly basis.
Are my HSA contributions really tax-free?
Yes, your HSA contributions are tax-free. The IRS states you can claim tax deductions for contributions you make even if the contributions are not itemized on Schedule A of Form 1040. As a bonus, any interest and earnings you make from your account are also tax-free.
What can I use my HSA funds for?
HSA funds are popular because they can be used to purchase an array of eligible medical expenses without paying taxes on them. For example, HSA funds can be used to pay for:
If an employee wants to use their HSA funds for over-the-counter medications, he needs to get a doctor’s prescription for the medication.
The bulleted items above are only a handful of options HSA funds can cover. According to the IRS, eligible medical expenses are:
“[...] the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. [...] Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They don’t include expenses that are merely beneficial to general health, such as vitamins or a vacation.”
Truly a bummer about the vacations right? Even still, your HSA funds can be used for a myriad of medical services. For any other expense-related questions, speak to your HR advisor.
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What’s the best HSA for me?
Employers who offer HSAs generally have more than one plan to pick from. The best option will be determined by your medical history, age, lifestyle choices, and more. Chances are the best option for you will be vastly different than the person working in the next cubicle. But by understanding the basic elements of HSAs, you’ll be well-suited to pick an appropriate plan for your lifestyle.