HSA FAQ

Any adult can contribute to an HSA if they are: covered under a High Deductible Health Plan (HDHP), are not enrolled in Medicare, are not claimed as a dependent on someone else’s tax return and are not covered by any other plan that is not an HDHP.

An HSA is an account you can put money into to save for future medical expenses. There are advantages in putting money into these accounts, including favorable tax treatment. These accounts were signed into law on December 8, 2003 and became effective in 2004.

A HDHP is generally health insurance that does not cover first dollar medical expenses. Additionally, the HDHP must meet the following 2011 guidelines:

You can use your HSA to pay for qualified out of pocket medical expenses for yourself, your spouse or your tax dependent children even if they are not covered under an HDHP.

Qualified medical expenses are those described in IRC 213(d). Also, expenses must be incurred after the establishment of the HSA.

Withdrawals for non-qualified out of pocket medical expenses are possible, but not advisable. If the withdrawal occurs before retirement age the withdrawn amount is taxed as income plus a 20% penalty. If the withdrawal occurs after retirement age the withdrawn amount is only taxed as income.

Individuals are responsible for ensuring HSA funds are used for qualified out of pocket medical expenses and to maintain records if ever audited by the IRS.

For 2021, the maximum you can contribute to your HSA is $3,600 if you have self only, High Deductible Health Plan (HDHP) coverage or $7,200 if you have family HDHP coverage

HSAs provide money saving advantages because they provide for tax free contributions, earnings, and withdrawals (when withdrawn to pay for qualified medical expenses); and because unused funds rollover each year.

You can make tax-free withdrawals (also known as distributions) from your HSA to pay for qualified medical expenses at any time during the year. However, you do not have to make withdrawals from your HSA each year. Your contributions remain in your HSA from year-to-year until you use them. If you make withdrawals for non-qualified medical expenses or for other reasons, the amount withdrawn will be subject to income tax and may be subject to an excise tax as well. Please keep in mind you should track all of your withdrawals from your HSA so you can supply documentation on your expenditures, if needed. It is up to you to monitor the deposits and withdrawals made to your HSA.

You can take distributions however you wish – paying for medical services directly with a check or your Benefits MasterCard tied to your HSA. Or, you can opt to pay for qualified out of pocket medical expenses using other funds, and simply reimburse yourself from the HSA.

When you use a distribution from your HSA for qualified out of pocket medical expenses, you do not pay tax on the distribution but you have to report the distribution on IRS Form 8889. Follow the instructions for the form and attach it to your IRS Form 1040.

When you use a distribution from your HSA for non-qualified out of pocket medical expenses, you must pay tax on the distribution and you have to report the distribution on IRS Form 8889. Follow the instructions for the form and attach it to your IRS Form 1040.

There is an additional 20% tax on the part of your distribution that was for a non-qualified out of pocket medical expense. The HSA owner is required to report the additional tax in the Other Taxes section of IRS Form 1040.

When your HSA assets reach $1,001 you become eligible to open an HSA investment account online through your Proficient Connect portal. Once enrolled in the Investment Portal, you will have access to the new HSA Guided Portfolio planning tool. Learn more about the HSA Guided Portfolio here and view the FAQ here.