Health Savings Accounts (HSAs) are stipulated by the IRS and have stringent requirements that must be met in order to qualify for participation. The accounts are considered trust or tax-exempt custodial accounts that are maintained by an independent party. HSAs allow you to either pay for or be reimbursed for stipulated medical expenses you incur throughout the applicable year.
Comply with Filing Status
In order to be considered an eligible individual and qualify for a HSA, “if another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an HSA contribution. This is true even if the other person does not actually claim your exemption,” the IRS cites. In order to qualify for an HSA, the filing status that you use on your income tax returns must be either single, qualifying widow, married filing jointly, married filing separately or head of household.
Trustee Requirements
In order for you to participate in an HSA and receive all the applicable tax benefits, your account must be maintained by a qualified trustee. A qualified trustee is one who has met stringent requirements set forth by the IRS and has received approval by the IRS to handle the account. Your qualified trustee, Meigs & Meigs cites, does not have to be your health care provider. The trustee can be a bank, a party involved in individual retirement arrangements or an insurance company.
Must Have HDHP
You must meet the requirement of being covered under a High Deductible Health Plan (HDHP) as of the first day of the month in order to qualify for an HSA, the IRS cites. A HDHP involves “having a higher annual deductible than typical health plans.” There is a stipulated maximum amount that you can pay for both your annual deductible amount and out-of-pocket medical expenses. If your plan uses a network of providers, however, this maximum limit amount does not “apply to deductible and expenses for out-of-network services” the IRS cites. According to the IRS, these deductible amounts will vary annually.
Other Health Coverage
The IRS states that there are other acceptable insurance plans and/or discount plans you can have while also participating in an HSA. The IRS states, in Publication 959 ("Health Savings Accounts and Other Tax-Favored Plans"), that you are allowed to have disability, long-term care, vision care, dental care and accidents coverage plans. According to the IRS, “Plans in which substantially all of the coverage is through the above listed items are not HDHPs.”
Prescription Drug Coverage
According to the IRS, you can take part in a stipulated prescription drug plan and still qualify for a HDHP. The prescription plan can be an individual plan or part of your HDHP. In order for the prescription drug plan to be allowed, however, the requirement states you must not receive any benefits from it until you have met the HDHP's minimum annual deductible amount.
References
- Accounting: The Basis of Business Decisions; Walter B. & Robert F. Meigs; 2007
- J.K. Lasser's Your Income Tax 2009; Barbara Weltman; 2008
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