A health savings account (HSA) is used to assist the account holder in saving money to be spent on eligible medical expenses. To be eligible for an HSA, an employee must be enrolled in a high-deductible health plan (HDHP) with a minimum deductible amount of $1,400 for an individual and $2,800 for a family.
Account owners receive triple tax advantages, meaning the deposited funds are tax-free, the funds within the account grow tax-free, and when spent on eligible expenses, the funds are withdrawn tax-free.
HSA owners, and anyone else they choose to designate, may withdraw money from the HSA. However, while the owner has control of the account, there are limitations as to what can be done free of penalty. If money is withdrawn early, there is a 20% penalty. Additionally, if money is withdrawn from the HSA for any reason other than for qualified medical expenses, the owner must pay an income tax on the withdrawn amount. For account holders over the age of 65, these penalties no longer apply.
It is important to note that funds contributed to the HSA do not have to be immediately spent. Unused funds carry over year to year.
Eligible Coverage for HSA Withdrawals
For funds to be used on a tax-free basis, withdrawals must be used for qualified medical expenses. If an expense is not paid or covered, the HSA can be used to pay qualified expenses for the owner’s spouse and dependents. It should be noted that spouses and dependents do not need to be HSA eligible for their qualifying medical expenses to be considered tax-free.
Qualified Medical Expenses
To qualify, expenses must occur to alleviate or prevent physical or mental illnesses or defects. Expenses for general health like vitamins are not covered. The following are common examples of qualified medical expenses:
|Addiction treatment||Artificial limbs||Hospital services and doctors’ fees|
|Annual physical exams||Hearing aids||Birth control and fertility enhancement|
|Ambulance services||Contact lenses and eye exams||Laboratory fees|
|Menstrual products||Psychiatric care||Special education|
|Prescriptions||Office visit copays||Crutches and wheelchairs|
For more detailed information on qualifying and non-qualifying expenses, click here.
If you have any questions on HSAs and the spending or withdrawal rules, please contact your dedicated Creative Benefits, Inc. team member.