HSA Rules for Employers
Since HSAs are tax-favored accounts created by the IRS, they are subject to a few basic tax rules. These rules are updated annually to keep up with inflation. You’ll always find the most current updates right here on HSAEducator.com.
HSA Eligibility
In order to open an HSA, individuals must meet be “HSA Eligible.” IRS guidelines say that an HSA Eligible Individual is anyone who:
- Is under age 65 and not entitled to Medicare
- Is covered by an HSA-qualified, High Deductible Health Plan (HDHP)
- Cannot be claimed as a dependent by another person
- Isn’t covered by some sort of additional, non-HDHP insurance program
HSA-Qualified High Deductible Health Plans
In order to open an HSA, account holders must be covered by a qualified High Deductible Health Plan (HDHP) and must not have any additional, non-HDHP coverage.
For 2008, the IRS has the following requirement for a High Deductible Health Plan:
Single/Self-Only Coverage
Minimum Annual Deductible: $1,100 ($1,150 for 2009)
Maximum Out-of-Pocket Expenses: $5,600 ($5,800 for 2009)
Family Coverage
Minimum Annual Deductible: $2,200 ($2,300 for 2009)
Maximum Out-of-Pocket Expenses: $11,200 ($11,600 for 2009)
Annual HSA Contributions
The IRS sets limits for how much can be contributed to an HSA in a calendar year, including funds deposited by employees, their employer, and any other source. Funds in excess of the maximum contribution limit are subject to a 6% tax penalty and regular income taxes. The total is figured based upon all contributions
For 2008, the IRS has set the following Annual Contribution limits:
Single/Self-Only Coverage: $2,900 ($3,000 for 2009)
Family Coverage: $5,800 ($5,950 for 2009)
Catch-Up Contributions
HSA owners age 55 and older can make additional contributions to their HSA called “catch-up contributions.” For 2008, allowed catch-up contribution is $900 and it goes up to $1,000 in 2009 and will stay there until the government changes its mind.
Eligible Expenses
When HSA dollars are spent on eligible medical expenses, they retain their tax-free status.
The list of HSA-qualified medical expenses is essentially the same as that of Flexible Spending Accounts, which many companies currently offer. This list is published online at www.irs.gov.
However, we’ll summarize, because no one should have to read tax-law publications unless it’s absolutely necessary. Eligible HSA expenses include major medical expenses, non-cosmetic dental and vision expenses, and over-the-counter drugs.
For a more complete list, view our List of Common Expenses PDF (in English, not legalese!).
And finally, an HSA can be used to cover not only the expenses of the account holder, but also the expenses of a spouse or dependent, regardless of the tier of insurance coverage.
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