A HSA is a tax-advantaged medical savings account that is available to American tax payers who are concurrently enrolled in a high deductible health plan (HDHP). Deposits into these accounts are not subject to payroll taxes and can be withdrawn without penalty for any qualifying medical expense. They also have a distinct advantage over Flexible Spending Accounts (FSA) because any deposits will accumulate and roll over year to year, where FSA’s require you use the funds that calendar year – the “use it, or lose it” approach.
Employers and individuals can contribute to these personally owned savings accounts and the IRS adjusts maximum contribution limits pretty much annually, with the exception of 2011 (program started under the Bush Administration in 2004).
With health care reform there was some speculation that HSA’s would be going away – that’s not the case. They are here to stay! However, there are a handful of characteristics of these accounts for 2014 that need to be noted.
2014 contribution limits (employer and individual combined)
· Maximum contribution limit for individuals - $3,300
· Maximum contribution limit for families - $6,500
· Age 55 catch-up contributions - $1,000
Minimum HDHP limits
· Minimum deductible for self-only coverage - $1,250
· Minimum deductible for family coverage - $2,500
· Maximum out-of-pocket expenses for individual - $6,350
· Maximum out-of-pocket expenses for family - $12,700
Coverage of Adult Children
While the Affordable Care Act has allowed parents to keep their children on their health policies up to age 26, the IRS has not changed their definition of dependent coverage. If an account holder can’t claim a child as a dependent on their tax returns, then they can’t spend HSA funds on the child. The child is qualified if:
· Has the same principal place of abode as the covered employee for more than one-half of the taxable year
· Has not provided more than one-half of his/her own support during the taxable year
· Is not yet 19 (or, if a student, not yet 24) at the end of the tax year or is permanently and totally disabled