HSA Accounts
Now, You Have a Fast, Easy Way to Save for Healthcare – And Pay for It, Too.
Your new Health Savings Account (HSA) is an excellent tool for managing your health, your family’s health – and your financial health, too. That’s because, with your HSA, you gain the benefits of:
- Lower Taxes. Since your HSA contributions come from pre-tax income, your federal income tax liability is less. And you don’t pay federal tax on any HSA funds you use for qualified medical expenses. (State tax liability varies; check with your tax advisor.)
- Greater Savings. Any unused funds in your HSA roll over year after year, and may earn interest.
- Greater convenience. Using your HSA debit card makes it easy to pay for qualified medical expenses, such as office visits, co-pays, and prescription drugs.
Key Facts About Your HSA
Q. How much can I contribute to my HSA?
A. As of 2007, you can contribute an amount up to your HDHP deductible, but not more than $2850 or $5650 for a family.
Q. Are my HSA contributions tax-advantaged?
A. Yes. Qualified contributions you make to your HSA are tax-free at the federal level, and any qualified contributions made by your employer are excluded from income and are also not federally taxable. State income tax laws vary, so consult a tax advisor to see how your state treats HSA funds.
Q. What happens to the unused funds in my HSA at the end of the year?
A. Like an Individual Retirement Account (IRA), your HSA account balance rolls over from one year to the next automatically.
Q. What are qualified medical expenses?
A. Qualified medical expenses are defined by the IRS, and include many healthcare-related purchases, from annual physicals to chiropractor visits; from dental treatments to vision care. Specific information about qualified medical expenses can be found in IRS publication 502.
Q. Are there penalties when HSA funds are used for non-qualified medical expenses?
A. Yes. You must report this in your annual income tax filing and pay the related income taxes, plus a 10 percent penalty. (After age 65, any funds used for qualified medical expenses must still be reported as income, but the 10 percent penalty does not apply.).