Question

wk 2-1

explain the purpose of a Health Savings Account (HSA), the qualifications to be eligible for a HSA deduction, and the consequences of an employer contribution to an employee’s HSA.

Answer 1

Health Savings Account (HSA)

A Health Saving Account is a tax advantaged medical saving account available to tax payers in USA who are enrolled in a high deductible health plan. A type of saving account that lets you set aside money on a pre tax basis to pay for qualified medical expenses. By using untaxed dollars in a HSA to pay for deductible, copayments, coinsurance, and some other expenses you may be able to lower your overall health care costs.

The advantage of HSA is as follows;

• Many expenses qualify - eligible expenses include wide range
• Others can contribute- both employer and employee can
• Tax deductible after tax contributions
• Tax feee withdrawals - withdrawals are not subject to federal tax
• Tax free earnings
• Convenience - many HSA isuue ATM

​​​​​​Qualifications to HSA

If you are enrolled in a high deductible health insurance plan (HDHP) as defined by the Government, you can qualify for an HSA. These plans are re defined each year by IRS, which determines the minimum deductible they must have and maximum amount a plan holder can spend out of pocket. You can find those current amounts on health care government but bear in mind some plans have high deductibles but don't qualify for an HSA. And other qualifications given below;

• The minimum required deductibles for an HDHP cannot be less than ; Individual = $1350, Family= $2700
• The maximum out-of-pocket expenses (deductibles) are capped for individual and for family coverage; InduvIndiv= $6750, Family= $13500
• Individuals cannot be covered by another non-qualified healthcare plan, such as a health plan sponsored by a spouse’s employer, Medicare, or TriCare
• Individuals cannot be claimed as a dependent on another individual’s tax return.

Employer Contributions to Employees HSA

Employer can contribute to employees HSA. Plus employer can save the payroll and FICA taxes through tax deductible contributions. Total combined employer and employee contribution to employees HSA cannot exceed the annual limit set by IRS.

Employer contribution to HSA of their employees may do so inside or outside of a cafeteria (section 125 ) plan. The contribution rules are different for each option.