A health savings account, or HSA, is a a tax-exempt custodial or trust account that allows you to be reimbursed or paid for certain medical expenses that you incur throughout the year. There are certain requirements, stipulated by the IRS, that you must meet in order to qualify for tax benefit.
Trustee
An IRS-approved trustee must handle the health savings account to ensure the account remains tax free. The trustee can be an insurance company, a bank or other party involved in individual retirement arrangements, says the IRS.
Eligibility
If you are being claimed as a dependent on your parents' or guardians' income tax returns, you do not qualify for a health savings account. Your personal tax status must be classified as either single, married filing jointly, qualifying widow, married filing separately or head of household, says Barbara Weltman, an attorney and tax expert with the J.K. Lasser Institute. And if you are enrolled in Medicare, you are not eligible for the health saving account.
Health Plan Rules
You must be covered under what is known as a High Deductible Health Plan, which has a higher annual deductible than typical health plans, according to the IRS. Your plan must have a maximum limit on the out-of-pocket medical expenses and the annual deductible amount you must pay for covered expenses.
Have Other Health Coverage
According to IRS Publication 969, "Health Savings Accounts and Other Tax-Favored Health Plans," you can be covered under other insurance or discount plans, including dental care, vision care, accidents, disability and long-term care without losing the ability to enroll in a health savings account plan. The IRS states that "plans in which substantially all of the coverage is through the above listed items are not HDHPs."
You are allowed to have additional health insurance that provides benefits only for: a specific disease or illness, a fixed daily amount of hospitalization and for "liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property," the IRS says.
Other Limitations
If your spouse has a different insurance plan and you are not covered under that plan, you both may enroll in a health savings account.
References
- Accounting: The Basis of Business Decisions; Walter B. & Robert F. Meigs; 2007
- J.K. Lasser's Your Income Tax 2009; Barbara Weltman; 2008
Member Comments