Health Savings Account (HSA) Eligibility Overview

Many employers offer high-deductible health plans (HDHPs) to control premium costs, and pair this coverage with health savings accounts (HSAs) to help employees with their health care expenses.

An HSA is a tax-favored trust or account that can be contributed to by, or on behalf of, an eligible individual for the purpose of paying qualified medical expenses. For example, individuals can use their HSAs to pay for expenses covered under the HDHP until their deductible has been met, or they can use their HSAs to pay for qualified medical expenses not covered by the HDHP, such as dental or vision expenses.

HSAs provide a triple tax advantage—contributions, investment earnings and amounts distributed for qualified medical expenses are all exempt from federal income tax, FICA tax and most state income taxes. Due to an HSA’s potential tax savings, federal tax law imposes strict eligibility requirements for HSA contributions. Only an eligible individual can establish an HSA and make HSA contributions (or have them made on his or her behalf).

General Rule

An individual’s eligibility for HSA contributions is generally determined monthly as of the first day of the month. The HSA contribution limit is calculated each month, and a contribution can only be made for months in which the individual meets all of the HSA eligibility requirements.  To be HSA-eligible for a month, an individual must:

  • Be covered by an HDHP on the first day of the month;
  • Not be covered by other health coverage that is not an HDHP (with certain exceptions);
  • Not be enrolled in Medicare; and
  • Not be eligible to be claimed as a dependent on another person’s tax return.

Read More»

DISCLOSURE

The information provided herein is intended solely for the use of our clients. You may not display, reproduce, copy, modify, license, sell or disseminate in any manner any information included herein, without the express permission of the Publisher or Publishers of articles within.

The information provided is for informational purposes only and does not constitute legal advice. The information above contains only a summary of the applicable legal provisions and does not purport to cover every aspect of any particular law, regulation or requirement. Depending on the specific facts of any situation, there may be additional or different requirements. This is to be used only as a guide and not as a definitive description of your compliance obligations.