By selecting an HSA-qualified plan, you are eligible to contribute tax-free money into a health savings account (HSA). Your HSA funds can then be used tax-free to pay for qualified medical expenses. In addition, your HSA contributions earn tax-free interest and carry over from year-to-year, even if you change jobs or retire.
Because HSA-qualified health plans typically cost less than traditional plans, the money saved can be contributed to your HSA.
There are specific requirements to open and contribute to an HSA. The IRS requires that you are covered by an HSA-qualified health plan, do not have other health coverage (i.e., traditional [non-HSA] health plan, Medicare, Tri-Care, VA benefits or even a flexible spending account), and are not claimed as a dependent on another person’s tax return. There are some permitted coverages including certain accident or disease policies, as well as coverage for accidents, disability, dental care, vision care and long-term care. For more information on eligibility requirements see IRS publication 969.
2022:
Single coverage: $3,650
Family coverage: $7,300
2023:
Single coverage: $3,850
Family coverage: $7,750
The IRS allows a $1,000 catchup contribution for individuals age 55+ each year.
Anyone can make a contribution to your HSA (i.e. you, your spouse, your employer), but as the account owner, only you benefit from the contributions as a deduction on your personal tax return. You do not need to claim contributions to your HSA made by your employer or others as income on your federal tax return.
The amount you can contribute each year depends on whether your health plan covers you (single) or yourself and others (family), as well as your age. Amounts are adjusted annually by the IRS.
You can contribute to your HSA until the tax filing deadline for the year (without extension). It is important to note that payroll contributions are applied to the calendar year in which they are made. Contributions for the prior tax year should be made through EFT or by check.
Your HSA funds can be used to pay for your qualified medical expenses as well as those of your spouse and other tax dependents. This is true, even if the dependent is not covered under your health plan.
Your allowed annual HSA contribution is based on the following factors:
For example, if you have individual coverage for the first five months of 2022 and change to family coverage for the last seven months of the year, you would be able to contribute $5,779.
$5,779 = [ 5 x ( $3,650/12 ) ] + [ 7 x ( $7,300/12 ) ]
During your first year with an HSA plan, you may be able to take advantage of the last-month rule and contribute up to the entire maximum for the year, regardless of when you join the plan.
Last-month rule: If you are an eligible individual on the first day of the last month of your tax year (December 1 for most), you are considered an eligible individual for the entire year. You are treated as having the same HSA-qualified coverage for the entire year as you had on the first day of that last month.
Testing period: If contributions were made to your HSA based on qualifications under the last-month rule, you must remain an eligible individual during the testing period. The testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month. For example, December 1, 2019 through December 31, 2020.
For more information, see IRS publication 969 under ‘Contributions to an HSA’ or consult a qualified tax advisor.
Tip: You can use your personal credit card to pay for medical expenses and then reimburse yourself from your HSA before you accrue credit card interest. This way you get the benefit of tax-free payments, plus any credit card rewards.
You can use your HSA funds to make a payment when you or an eligible dependent have a qualified medical expense. Payments, also referred to as distributions, are tax-free as long as they are used for qualified medical expenses. You can pay a provider from your HSA directly, or you can pay out-of-pocket and reimburse yourself later. There is no deadline to reimburse yourself for a medical expense you have paid out-of-pocket. You can do it next week, next year or several years after the expense is incurred. Simply keep the documentation (receipt or EOB) of the expense, or upload it to the documentation library located on the HealthEquity member portal for safe keeping. You will need to be able to provide this documentation if you are audited by the IRS.
After you have received an invoice from your provider and matched it with an EOB from your health plan, you are ready to make a payment. You can use the HealthEquity member portal to set up a direct payment using our online payment tool. We will send the payment to the provider and include all of the information necessary to apply the payment to your bill.
You can also use your HealthEquity debit card to make payments to your providers. This is especially convenient at the pharmacy. Most providers will also accept the card over the phone, online or written-in on the statement for payment. In order for your card to work, you must have the balance available in your HSA; no overdraft is available. The card will not work at ATMs and will only work at appropriate medical facilities. The card should always be run as ‘credit’ and no PIN is required. Lastly, be sure to keep all receipts as documentation of your purchases or upload them to the documentation library in the member portal.
For an expanded list of qualified medical expenses:
Qualified medical expenses are designated by the IRS. They include medical, dental, vision and prescription expenses. See IRS publication 502 for a list of specific examples. Some highlights include:
Qualified medical expenses are those incurred by the following persons:
This information is listed in IRS Publication 969. For more IRS definitions of qualified dependents please visit the IRS.gov website.
The federal penalty for using HSA funds for non-qualified expenses is 20 percent if you are under age 65, plus the loss of tax-free treatment for the distribution. Keep itemized receipts and copies of prescriptions for over-the-counter drugs in case of an IRS audit.
Because your HSA is a tax-advantaged account, the IRS requires you to report how you use the account on your income tax return using Form 8889. HealthEquity provides two tax statements as applicable each year: 1099-SA and 5498-SA.
If you had distributions from your account, they will be reported on the IRS Form 1099-SA. Unlike other 1099 forms, you are not required to include the amounts reported on this form as income unless they were used for non-qualified expenses. The form is mailed (and made available to you electronically) by the end of January each year, and is needed to properly file your tax return. For additional information, please consult a tax advisor. If you notice any errors, please contact HealthEquity immediately.
Form 5498-SA is used to report contributions and rollovers to your account, and the account’s fair market value (FMV). This form is not delivered until the tax filing deadline has passed and is not needed to file your taxes. The form is delivered in May each year. This is because you are allowed to contribute to your account up until the tax filing deadline, and the form captures all contributions for the tax year. HSA contributions are reported in boxes 2, 3 and 4.
Your tax preparer will use your 1099-SA, W-2 and other documents, as necessary, to complete and submit IRS Form 8889 with your annual tax return. Form 8889 is used to calculate your HSA deduction amount and report distributions.
In the event that you are audited by the IRS, you may be required to provide documentation of medical expenses paid using your HSA. We suggest that you upload your receipts, invoices, EOBs, written prescriptions (including those for over-the-counter medicine) and other official documentation to the HealthEquity member portal. These documents will remain safe and secure for future access.
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