YOUR HSA

Introduction

By selecting an HSA-powered plan with a higher deductible, you are qualified 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 deposits earn tax-free* interest and carry over from year to year, even if you change jobs or retire.

Because HSA-powered health plans cost less than traditional plans, the money saved can be used to contribute to your HSA.

Who can sign up for an HSA?

There are specific requirements to open and contribute to an HSA. Specifically, the IRS requires that you be covered by an HSA-qualified health plan and that you have no other health coverage. Other health coverage could include a traditional (non-HSA) health plan, Medicare, Tri-care, VA benefits or even an FSA. There are some permitted coverages including some specific 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.

Contributions

Anyone can make a deposit to your account (you, your spouse, your employer, etc.) but as the account owner, you are the only one who benefits from the contributions as a deduction on your personal tax return. You don’t need to claim contributions to your HSA made by your employer or others as income on your federal tax return.

Qualifications for HSA contributions

Your allowed HSA annual contribution is calculated based on the following factors:

The number of months covered by an HSA-qualified plan
Your coverage type (individual or family)

For example, if you have individual coverage for the first five months of 2013 and change to family coverage for the last seven months of the year, you would be able to contribute $5,275:

$5,275 = [5 x ( $3,350 / 12 )] + [ 7 x ( $6,650 / 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 (as stated in IRS Publication 969) Under the 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 taxpayers), you are considered an eligible individual for the entire year. You are treated as having the same [HSAqaulified] coverage for the entire year as you had on the first day of that last month.

Testing period (as stated in IRS Publication 969) If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. For the last-month rule, 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, 2012, through December 31, 2013.

For more information, see IRS Publication 969 under “Contributions to an HSA” or consult a qualified tax advisor.

Contribution limits

The amount that can be deposited each year depends on whether your health plan covers just you (single coverage) or yourself and others (family coverage), as well as your age. Amounts are adjusted annually by the IRS.

Contribution deadlines

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 only. Additional contributions for the prior tax year should be made directly to your account through EFT or by check.

Spouse and other tax dependents

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.

Medical expenses after your HSA is established

Once a qualified medical expense is incurred by you or an eligible dependent, you can use your HSA funds to make payment. Payments, also referred to as distributions, are tax-free as long as they are used for qualified medical expenses (see page 10). You can pay a provider from your HSA directly, or you can pay some other way and reimburse yourself later. There is no deadline to reimburse yourself for a medical expense you’ve 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/EOB) of the expense, or upload it to the HealthEquity member portal Documentation Library. You’ll need to be able to provide documentation if you are audited by the IRS.

Direct payments to providers

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 setup a direct payment, using our PayChoice® online payment tool. We’ll send the payment directly to the provider and include all of the information necessary to apply the payment to your bill.

HSA debit card payments

You can also use your HealthEquity HSA debit card to make payments to your provider(s). 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 typically 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 HealthEquity Documentation Library in the member portal.

Qualified medical expenses

Qualified medical expenses are designated by the IRS. They include medical, dental, vision and prescription expenses. See our database of qualified medical expenses for a list of specific examples.

Tax reporting

Because your HSA is a tax-advantaged account, the IRS requires you to report how you use the account on your income tax return, typically on Form 8889. HealthEquity provides two tax statements as applicable each year: 1099-SA and 5498-SA.

IRS Form 1099-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 (or 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.

IRS Form 5498-SA

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 filing deadline, and the form captures all contributions for the tax year. HSA contributions are reported in boxes 2, 3 and 4.

Box 2 - all contributions (regardless of tax year)made during the calendar year.
Box 3 - contributions that were made after the end of the calendar year, but were designated as prior year contributions.
Box 4 - any amounts rolled over from another HSA.
Box 5 - FMV as of December 31st.

IRS Filing Form 8889

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.

Documentation

In the event that you are audited by the IRS, you may be required to provide documentation of medical expenses paid from your HSA. We suggest that you upload your receipts, invoices, EOBs, written prescriptions (including those for over-the-counter medication) and other official documentation using the HealthEquity member portal. These documents will remain safe and secure for future access.

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