Tip Tuesday - HSA Contribution Rules

Many employers offer high deductible health plans (HDHPs) to control premium costs and then pair this coverage with health savings accounts (HSAs) to help employees with their health care expenses.

An HSA is a tax-favored trust or account that can be contributed to by, or on behalf of, an eligible individual for the purpose of paying qualified medical expenses. For example, individuals can use their HSAs to pay for expenses covered under their HDHPs until their deductibles have been met, or they can use their HSAs to pay for qualified medical expenses not covered by their HDHPs, such as dental or vision expenses.

HSAs provide a triple tax advantage—contributions, investment earnings and amounts distributed for qualified medical expenses are all exempt from federal income tax, Social Security/Medicare tax and most state income taxes. Due to an HSA’s potential tax savings, federal tax law includes strict rules for HSA contributions.

Links And Resources

·    IRS Publication 969, Health Savings Accounts and Other Tax-favored Health Plans

·    IRS Notice 2004-50

·    IRS Revenue Procedure 2016-28, which includes the inflation-adjusted HSA contribution limits for 2017

Contribution Limits

·   For 2017, $3,400 for individuals with self-only coverage and $6,750 for individuals with family coverage.

·   Individuals who are age 55 or older may make an additional $1,000 “catch-up” contribution. 

Contribution Rules

·   For each month an individual is HSA-eligible, he or she may contribute one-twelfth of the applicable maximum contribution limit.

·   The full-contribution rule is a special rule that allows an individual who is HSA-eligible for only part of a year to make a full year’s worth of HSA contributions.

·   A special contribution limit applies to married spouses when either spouse has family HDHP coverage. 

This Compliance Overview is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

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