Health Savings Accounts
December 7, 2022
A Health Savings Account (HSA) is a tax-advantaged medical savings account available to individual taxpayers in the United States who are enrolled in a High-Deductible Health Plan (HDHP) and are not covered by any other non-HSA-compatible health plan, like Medicare Parts A and B. The funds contributed to an HSA account are not subject to federal income tax. Unlike a Flexible Spending Account (FSA), HSA funds carry over and accumulate year to year if they are not spent. HSAs are owned by the individual, unlike a Health Reimbursement Arrangements (HRA) which is company funded, does not roll over and remains the property of the company.
Employers offering a HDHP paired with an HSA can be a powerful strategy that allows the employer to not only reduce spending, but helps employees prepare to manage their healthcare responsibilities. HSAs allow employees to set aside pre-tax dollars to pay for IRS qualified medical expenses, such as doctor and hospital visits, prescriptions, dental and vision expenses and (currently) certain over-the-counter medications. These contributions assist in reducing the employees’ and employers’ tax liability. Unused funds carry over year to year and employees can invest what they don’t spend. HSA funds may be invested in a variety of stocks, bonds and mutual funds, which are not taxable.
If individuals are enrolled in a HDHP in 2022, they can contribute up to the IRS limits of $3650 for self-only coverage and up to $7300 for family coverage into an HSA; for 2023, they can contribute up to $3850 for self-only coverage and $7750 for family coverage. If the individual is over age 55 and is the HSA account holder, the individual may contribute a $1000 HSA catch-up contribution.
Other individuals or the employer may contribute to an individual’s HSA, but the combination of contributions may not exceed the IRS limits. Employer contributions aren’t included in income. Withdrawals from an HSA are tax free when used to pay for qualified medical expenses.
An individual may obtain a Health Savings Account through their employer (if offered) or other financial institution to those enrolled in a HDHP only.