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Health Savings Account (HSA)

Last Updated September 9, 2010

Definition

Health Savings Accounts (HSAs) , created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 , are individual savings accounts, for which the amounts are intended to be used to pay for medical expenses on a tax-free basis.

HSAs are used in conjunction with a high deductible health plan (HDHP).

The following individuals are eligible for HSAs:

  • Any individual that is covered by an HDHP
  • Any individual that is not covered by other health insurance
  • Any individual that is not enrolled in Medicare
  • Any individual that can’t be claimed as a dependent on someone else’s tax return

HSA Limits

 

2008

2009

2010

The maximum annual HSA contribution for an eligible individual with self-only coverage

$2,900

$3,000

$3,050

Family coverage

$5,800

$5,950

$6,150

Catch up contributions for individuals who are 55 or older

$900

$1,000

$1,000

Maximum annual out-of-pocket amounts for HDHP self-coverage increase

$5,600

$5,800

$5,950

Maximum annual out-of-pocket amount for HDHP family coverage

$11,200

$11,600

$11,900

Minimum Deductible Amounts for HSA-Compatible HDHPs for self-only coverage

$ 1,100

$1,150

$1,200

Minimum Deductible Amounts for HSA-Compatible HDHPs for family coverage.

$2,200

$2,300

$2,400
  • HSA contribution and catch up contribution apply pro rata based on the number of months of the year a taxpayer is an eligible individual
  • Individuals who have HDHP coverage as of December 1, 2007, are allowed the full, non-pro rated contribution for the year. However, if the individual cease to remain an eligible individual throughout 2008, the extra amount contributed is included in income and subject to an additional 10 percent tax.
  • A fiscal year plan that satisfies the requirements for an HDHP on the first day of the first month of its fiscal year may apply that deductible for the entire fiscal year

 

Referring Cite

IRC § 223, IRS Publication 969, IRS Notice 2004-2, IRS Notice 2004-50, IRS Notice 2008-59

Additional Helpful Information

  • There is no compensation caps on eligible requirements for contributing to an HSA
  • Individuals need not have earned income in order to contribute to an HSA
  • Children cannot establish their own HSAs
  • Spouses can establish their own HSAs, if eligible
  • Funds remain in the account from year to year, just like an IRA.
  • There are no “use it or lose it” rules for HSAs
  • Contributions to an HSA must discontinue once an individual is enrolled in any type of Medicare
  • If HSA distributions are not used for qualified medical expenses, the amount distributed is included in income and subject to the 10% additional tax. The additional tax does not apply if the distribution occurs after (a) the individual dies or becomes disabled or (b) the individual reaches age 65