An HSA is a tax-free medical savings account that offers a different way to pay for qualified healthcare services.
An HSA allows the participant/employee to pay for current healthcare services, save for future healthcare services, and accrue interest without paying taxes on the account’s growth.
The funds contributed to an HSA are not subject to federal income tax.
Who is eligible for an HSA?
In order for a participant/employee to contribute to an HSA, he/she must be enrolled in a High Deductible Health Plan (HDHP).
For 2020, the minimum deductible and maximum out-of-pocket costs are shown below:
|Minimum Deductible||Maximum Out-of-Pocket Expenses|
What’s the benefit of an HSA?
- When a High Deductible Health Plan (HDHP) is combined with an HSA, the participant/employee can use the tax-free funds in his/her HSA to pay for the deductible and other eligible healthcare expenses.
- Any interest earnings from the HSA are tax-free.
- The entire balance in an HSA rolls over from year to year, so the participant/employee can accumulate funds to pay for eligible healthcare expenses in the future.
Is there a contribution limit?
Yes, the annual HSA contribution limits are as follows for 2020:
What medical services may I spend my HSA funds on?
Eligible healthcare expenses are governed by IRS Section 213(d).
What if I do not use all of my HSA funds during the plan year?
Funds in an HSA will roll over from year to year.
The participant/employee is able to contribute up to the maximum permitted each year as listed above. A participant/employee will not forfeit funds if he/she leaves his/her employer.
What is an HSA catch-up?
Individuals who are 55 and older may contribute an additional $1000 per year.
An HRA is a tax-free medical benefit arrangement that allows employers and participants/employees to save on the cost of healthcare. An HRA is an employer-funded healthcare reimbursement plan, whereas the employer sets aside a specific amount of pre-tax dollars that the participant/employee can use to pay for eligible healthcare expenses.