Overview: Health Savings Accounts (HSAs) offer a convenient, tax advantaged way for individuals to save money to pay for health care expenses. While they function like a personal savings account, the money in an HSA should only be used for health care expenses. Individuals that withdraw funds from an HSA for nonmedical expenses have to pay taxes on the money. Individuals under age 65 will also be subject to a 10 percent penalty for nonmedical withdrawals.
To be eligible for an HSA, an employee must participate in a high deductible health plan (HDHP). As the name indicates, an HDHP is a plan that has a higher deductible than typical health plans. Premiums paid for an HDHP are generally lower than premiums for traditional insurance plans. In many cases, preventive care is covered without a deductible.
HSAs can be funded by both employee and employer contributions. Contributions are subject to annual limits that are indexed for inflation and adjusted each year. The account is owned and controlled by the employee. Unspent money can be rolled over each year, and employees can take the money with them if they change jobs.
Trends: As health care costs continue to rise, many individuals are using HSAs not only for current medical expenses, but also as an investment for future health care costs.
Author: Tracy Morley, SPHR, Legal Editor
Updated to reflect the repeal of the ACA's individual mandate under the federal tax reform law; the removal of vacated EEOC regulations on wellness program incentives; a provision regarding the DOL final rule applicable to certain self-funded association health plans, all effective January 1, 2019; and under review in relation to the final rules regarding contraceptive coverage under the Affordable Care Act.
The IRS has released Revenue Procedure 2016-55, which provides the annual inflation adjustments to the employer-provided fringe benefit limitations and personal income tax-related amounts.
As mandated by the Internal Revenue Service, every employer that is organized as a corporation that transfers stock to any person upon the exercise of an incentive stock option must file Form 3921, Exercise of an Incentive Stock Option Under Section 422(b), on an annual basis.
As mandated by the Internal Revenue Service, every trustee or custodian of health savings accounts, Archer medical savings accounts (MSAs), or Medicare Advantage MSAs must file Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, on an annual basis.
Employment glossary definition of HSA (Health Savings Account).
HR guidance regarding the benefits of offering employee Health Savings Accounts.