Note for Employers: Health Savings Accounts (HSAs) are becoming a more common part of average Americans’ lives. Paired with HSA-qualified health plans, they cover a growing number of Americans’ health care costs and play an important role in their future.
This post is one of several that will appear in the coming months to help your employees understand HSAs better and use them strategically. The posts are excerpts from “HSA Owner’s Manual, Second Edition” by Todd Berkley (published by Tate Publishing, 2015). Todd Berkley is Senior Vice President and Managing Director for BenefitWallet®, A Xerox Solution.
The IRS sets the maximum annual contribution based on contract type and may revise it each year. The maximum includes contributions from all sources, including your employer.
“This post will give you some basic information so that you’ll understand HSAs in their proper context. We’ll take a deeper dive into these topics in later posts.”
Todd Berkley, Senior Vice president and Managing Direector, BenefitWallet.
You and any other HSA-eligible person on your contract (such as your spouse) can contribute an additional $1,000 annually beginning at age 55.
If you are covered on a family contract, you can contribute up to the applicable maximum family contribution, even if you are the only HSA-eligible individual on your health insurance contract.
You can make pre-tax payroll contributions if your employer offers a Cafeteria Plan. You can make personal (after-tax) contributions to your HSA. You can deduct these contributions from your taxable income on your personal income tax return.
You can make personal contributions whether or not your employer offers pre-tax contributions through a Cafeteria Plan (though, in most cases, you enjoy additional tax advantages by contributing through a Cafeteria Plan). If your employer doesn’t offer a Cafeteria Plan, you’re self-employed, or you’re the owner of certain business entities, your only option is to make personal contributions directly to the trustee.
You determine the amount and timing of your HSA contributions. You do not make a binding annual election through your employer’s Cafeteria Plan.
Married couples who are both HSA-eligible can split the family contribution as they wish.
The IRS has not ruled on the maximum contribution and division requirements for domestic partners, though many attorneys and trustees are advising their clients that each domestic partner may be eligible to make contributions up to the statutory maximum for a family contract.
Contributions are either pre-tax or deductible at the federal level. Several states assess income taxes on contributions or investment taxes on account earning.
If you lose your HSA eligibility midyear, you must pro-rate your contributions based on the number of months that you were HSA-eligible.
If you become HSA-eligible after January 1 but no later than December 1, you can either pro-rate your contribution or make a full contribution, provided that you remain HSA-eligible through December 31 of the following year (e.g., if you become HSA-eligible in November of this year, you can make a full contribution provided you remain HSA-eligible through December 31 of next year).
If you contribute too much to your HSA, you can correct your error before filing your taxes or incur penalties.
The IRS Health Saving Account (HSA) limits for 2017
The 2017 Internal Revenue Service limits for HSAs and High Deductible Health Plans (HDHPs) under Section 223:.
IRS HSA Limits 2016 2017 Change from 2016 HSA Contribution Limits: Individual Coverage $3,350* $3,400* 50 Family Coverage $6,750* $6,750* 0 HDHP Minimum Required Deductibles: Individual Coverage $1,300 $1,300 0 Family Coverage $2,600 $2,600 0 HDHP Out-of-Pocket Maximum: Individual Coverage $6,550 $6,550 + 0 Family Coverage $13,100 $13,100 + 0
* Persons age 55 or older may make additional “catch-up” contributions of up to $1,000 in 2017 (the same amount as in 2016).
Checklist
Learn before the beginning of the plan year the amount and timing of your employer contribution so that you can plan your personal contributions accordingly.
Plan to make pre-tax payroll contributions if your employer offers a Cafeteria Plan. You should begin the discipline of regular HSA deposits.
Check to see whether your employer has set up a negative election, Most do not, but some do.
Review your contributions before the end of the calendar year to make sure that you have not made an excess contribution (and correct the excess contribution if you have made one).
The author is not a lawyer and this article does not constitute legal advice. For more detailed information, consult the HSA Owners’ Manual by Todd Berkley.