HSA Resource Center

Frequently Asked Questions and IRS Materials

Simply click on any of the questions to view the answer or scroll down to see all of the questions and answers.

Employer FAQs

  1. When does the HSA have to be established?
  2. Does an employer have to make contributions to an employee's HSA?
  3. May an employer fully fund the employee's HSA at the beginning of the year?
  4. Are employer-made HSA contributions deductible health care expenses?
  5. Can employers make pre-tax contributions to their employees' HSAs?
  6. May employers make matching contributions?
  7. Can you coordinate an HSA with a cafeteria plan?
  8. Is the employer responsible for reviewing medical expenses?
  9. How often can an employee adjust their HSA contribution when contributing through a cafeteria plan?
  10. If I lose my job, what happens to my HSA?

Individual FAQs

Opening an HSA
  1. Who is eligible to open an HSA?
  2. Are there any income limits affecting eligibility?
  3. I have a high deductible insurance policy, do I qualify for an HSA?
  4. My spouse has a health policy through her employer, am I eligible?
  5. I have a qualified high deductible policy, how do I set-up an HSA?
  6. Does my HSA need to be set-up with my Health Insurance Company?
  7. Will my account be protected?
  8. What if I don't have a high deductible health insurance policy?
  9. If my spouse has a non-HDHP would that prohibit me from getting an HDHP?
  10. I have an HDHP through my employer but my employer does not offer an HSA, can I still have one?
  11. My wife and I have family coverage, can we both open an HSA?
  12. If I lose my job, what happens to my HSA?
Contributions
  1. Who can contribute to my HSA?
  2. How much can I contribute to my HSA?
  3. How is the contribution limit determined?
  4. Can I fund my account at the family level if I have single coverage?
  5. Do I need to fund my entire HSA all at once or can I fund it over time?
  6. How do I make additional contributions after I opened my HSA?
  7. What is a catch-up contribution?
  8. Can both spouses make a catch-up contribution?
  9. My employer only funded a portion of my HSA, can I still contribute to it?
  10. I am age 65 and covered under an HDHP, can I still contribute to my HSA?
  11. What if I am only eligible part of the year?
  12. When do I have to make my contribution?
  13. What if I was but no longer am eligible for an HSA, can I still make a contribution?
Distributions
  1. What can I spend my HSA funds on?
  2. What expenses are qualified?
  3. Can I withdraw the funds from my HSA account at any time?
  4. What can I invest the funds in my HSA account in?
  5. Am I required to track the expenditures made from my HSA?
  6. I have self only insurance coverage, can I use my HSA funds for my family members?
  7. I understand that I can reimburse myself from my HSA for qualified medical expenses that I pay out-of-pocket but is there a time limit, do I need to reimburse myself in the same year?
  8. Can I use my HSA to pay for health insurance premiums?
  9. Can I use my HSA to pay for Long Term Care Insurance?
Transfers/Rollovers
  1. I have an MSA can I transfer this account into an HSA and what do I need to do?
  2. Are there any limits on the amount I have to spend or on the amount I can carry over to subsequent years?
  3. Special Rules for individuals age 55 and older-additional contribution amounts?
  4. Can I transfer my IRA into an HSA?
Accessing your HSA funds after age 65
  1. How do I access the funds after I reach age 65?
  2. Can I use my HSA funds to pay for Medicare part A or part B premiums after I reach age 65 or do I need to wait until my spouse is also 65?

HSA Custodian Questions

  1. How do you report ATM fees for an HSA?
  2. Is the HSA custodian responsible for tracking a once in a lifetime IRA transfer?
  3. How does the return of a mistaken distribution work? Does the custodian need to obtain clear and convincing evidence from the employee prior to withdrawing mistaken distributions?
  4. Can an HSA custodian or trustee offer overdraft protection on an HSA account?

IRS Materials

  1. IRS Form 1040 - HSA deduction on Line 25[PDF]
  2. IRS Form 8889 - HSA Instructions [PDF]
  3. IRS Form W2 Employee Pay Reporting. [PDF]
  4. Instructions for IRS Form W2 Instructions for Employee Pay Reporting. [PDF]
  5. IRS Final Comparability Regulations - Final Regulations on comparability rules regarding employer contributions on behalf of employees. [PDF]
  6. IRS Form 5498-SA Contribution Report [PDF]
  7. IRS Form 1099-SA Distribution Report [PDF]
  8. Instructions to 1099-SA and 5498-SA [PDF]
  9. Instructions to IRS Form 8889 [PDF]
  10. IRS Pub 502 Medical and Dental Expenses. - IRS guidelines on qualified medical expenses. [PDF]
  11. IRS Pub 969 HSAs and Other Tax-Favored Health Plans. - IRS high level overview of health savings accounts. [PDF]
  12. IRS Notice 2004-2 - early IRS guidance on health savings accounts. [DOC]
  13. IRS Notice 2004-23 - safe harbor guidelines for preventative care that may be provided by an HDHP without satisfying the minimum deductible requirements. [PDF]
  14. IRS Notice 2004-50 - additional IRS guidance on health savings accounts. [PDF]
  15. IRS Notice 2005-8 - IRS guidance on a partnership's contributions to a partner's HSA and an S-corporation's contribution to a 2-percent shareholder employee's HSA. [PDF]
  16. IRS Notice 2005-86 - IRS guidelines regarding eligibility for a health savings account during a cafeteria plan grace period. [PDF]
  17. IRS Notice 2007-22 - IRS Guidance on rollovers of FSA and HRAs to HSAs. [PDF]
  18. IRS Revenue Ruling 2005-25 - clarification on spousal eligibility for an HSA when other spouse has nonqualifying family coverage. [PDF]
  19. IRS Revenue Ruling 2004-45 - interaction between HSAs and other health arrangements (FSA as "other health plan"). [PDF]
  20. IRS Notice 2008-51 - IRA to HSA Direct Transfer Rules. [PDF]
  21. IRS Notice 2008-52 - Testing Period Rules. [PDF]
  22. IRS Notice 2008-59 - General HSA Guidance. [PDF]

Employer FAQs

1. When does the HSA have to be established?
The account does not ever have to be opened. Employers are under no obligation to provide HSAs to their employees. However, for employees to be able to take advantage of the ability to pay for medical expenses using pretax funds, the account must be established before the expense has been incurred.

2. Does an employer have to make contributions to an employee's HSA?
No, employers are under no obligation to make any contributions to their employee's HSAs. Many employers find that making a contribution may help improve employee acceptance of adopting an HSA plan especially if they are transitioning from a more traditional type of health coverage. If an employer elects to contribute to an HSA outside of a cafeteria plan, the contributions must be comparable. We have developed a simple worksheet that helps you evaluate comparability, click here to view our Employer Comparability Worksheet.

3. May an employer fully fund the employee's HSA at the beginning of the year?
Yes. An employer may fully fund the employee's HSA at the beginning of the year however, HSAs belong to the individual and not the employer, and the employer has no further control over the accounts after they have been funded. As a result, many employers elect to fund employees HSAs periodically thoughout the year.

4. Are employer-made HSA contributions deductible health care expenses?
The tax treatment depends on how the business is incorporated. For sole proprietors, partnerships, and S-corporations, contributions to a partner's HSA will be treated as a distribution to the partner and included in the partner's income and may be deductible by the partner but not by the business (see IRS Notice 2005-8 for treatment of HSA contributions in exchange for guaranteed payments of services rendered for partners and 2-percent shareholder employees of S-corporations). For larger corporations, employer contributions are treated as employer provided coverage for medical expenses under an accident or health plan.

5. Can employers make pre-tax contributions to their employees' HSAs?
Yes. Employers may make pre-tax contributions to their employee's HSAs if they have a cafeteria plan in place that provides for HSA contributions. These contributions are not subject to witholding from wages for income tax or subject to FICA, FUTA or the Railroad Retirement Act.

6. May employers make matching contributions?
In general, employer matching contributions would likely violate comparability testing (i.e., they must make comparable contributions for all eligible individuals with comparable coverage during the same period). However, matching contributions through a section 125 cafeteria plan are not subject to comparability testing (but section 125 nondiscrimination rules would apply).

7. Can you coordinate an HSA with a cafeteria plan?
Yes. Under certain limited circumstances it is possible for employees to fund an HSA in addition to a health FSA. Integration of these plans must be carefully constructed so that the benefits being reimbursed under the health FSA are limited to benefits not paid by the high deductible plan. For example, it would be possible to have an vision and dental FSA, as long as the high deductible plan does not cover vision or dental benefits.

8. Is the employer responsible for reviewing medical expenses?
No, the employer is not responsible for policing the employee's HSAs. The individual account holder is responsible for determining that their account funds are being properly used and would be required to provide supporting evidence on the use of their funds if requested under IRS audit.

9. How often can an employee adjust their HSA contribution when contributing through a cafeteria plan?
Employees contributing to an HSA through a cafeteria plan may make adjustments to their contributions at any time, as long as the change only affects future contributions.

10. If I lose my job, what happens to my HSA?
Your HSA belongs to you regardless of your employment. If you lose your job and elect to retain your HDHP under COBRA you may even pay the COBRA premiums from your HSA.


Individual FAQs

Opening an HSA


1. Who is eligible to open an HSA?
Anyone, individuals, employees and employers, can open an HSA but you must have a corresponding high deductible health policy. More technically, an HSA can be established for any individual that meets all of the following:

  • is covered by a high deductible health plan
  • is not covered by another health plan
  • is not eligible to be claimed as a dependent on another person's tax return
  • is not entitled to Medicare benefits

For more information please see our Eligibility & Contribution Worksheet

2. Are there any income limits affecting eligibility?
No, everyone is eligible.

3. I have a high deductible insurance policy, do I qualify for an HSA?
You may, but in order to qualify for an HSA you must be an eligible individual (see above) and have a qualified high deductible policy (an HDHP). A qualified HDHP is one that has specified minimum limits for the annual deductible and maximum limits for out-of-pocket expenses. Specifically, for individual coverage the HDHP must have an annual deductible of at least $1,200 and require that annual out-of-pocket expenses (includes co-payments and deductibles but not insurance premiums) paid not exceed $6,050. For family coverage the limits are an annual deductible of not less than $2,400 and require that out-of-pocket expenses not exceed $12,100. These are 2012 limits.

4. My spouse has a health policy through her employer, am I eligible?
If your spouse has an individual policy and no other insurance and you are otherwise qualified (see above), you are eligible to have an HSA. However, if your spouse participates in an FSA you would not be eligible for an HSA. This is because you are not eligible for an HSA if you are covered by "other insurance." Even though you are not covered by your spouse's health insurance, the IRS has determined that your spouse's FSA is considered "other insurance" thus rendering you ineligible for an HSA. An exception to this rule exists for limited purpose FSAs (those that cover vision and dental expenses only) and you would be eligible for an HSA if your spouse had a limited purpose FSA

5. I have a qualified high deductible policy, how do I set-up an HSA?
To open your HSA simply complete an HSA Application form and send it to your HSA provider with a check in the amount of your initial HSA contribution.

6. Does my HSA need to be set-up with my Health Insurance Company?
No. The HSA can be set-up with any qualified trustee or custodian. Many people are choosing to open their HSAs with a provider that is different from their insurance company to take advantage of lower fees and establish independence in the event that they change insurance providers.

7. Will my account be protected?
An HSA is a trust or custodial account that can hold many different types of assets; including, both FDIC insured investments and others. If your money in your HSA is placed into an FDIC insured deposit account, an FDIC checking account for instance, then it will enjoy FDIC insurance.

8. What if I don't have a high deductible health insurance policy?
Before you can open a Health Savings Account you must first be insured with a High Deductible Health Plan (HDHP).

9. If my spouse has a non-HDHP would that prohibit me from getting an HDHP?
Generally, no. As long as your spouse's non-HDHP does not cover you, you remain an eligible individual and can participate in an HSA. If your spouse had a family non-HDHP and you were not exempted from that coverage then you would not be an eligible individual and would not be able to participate in an HSA. However, if, for example, your spouse had a family non-HDHP to cover himself and your two children only, then you would still be eligible to open an HSA.

10. I have an HDHP through my employer but my employer does not offer an HSA, can I still have one?
Yes. The HSA belongs to the individual not the employer and any eligible individual may open an HSA. As long as you are covered under a High Deductible Health Plan (HDHP) you may open and contribute to an HSA.

11. My wife and I have family coverage, can we both open an HSA?
Yes. You may both open an HSA however, the total amount that may be contributed to your HSAs is still the contribution limit (see Contribution Limits below).

12. If I lose my job, what happens to my HSA?
Your HSA belongs to you regardless of your employment. If you lose your job and elect to retain your HDHP under COBRA you may even pay the COBRA premiums from your HSA.

Contributions

1. Who can contribute to my HSA?
Any eligible individual may contribute to an HSA. For an HSA established on behalf of an employee both the employee and the employer may make contributions. Additionally, family members may make contributions on behalf of other family members as long as the other family member is an eligible individual (i.e., has a qualified HDHP and is not otherwise insured).

2. How much can I contribute to my HSA?
The guidelines for maximums for 2012 are $3,100 ($3,050 for 2011)for self-only coverage and $6,250($6,150 for 2011) for family coverage. Individuals who are age 55 and over but under age 65 may make additional catch-up contributions of $1,000. Contribution guidelines will be adjusted annually to account for CPI fluctuations.

3. How is the contribution limit determined?
Eligible individuals with self-only coverage may contribute up to $3,100 (2012) and those with family coverage may contribute up to $6,250 (2012). Caution: if this is your first year of HSA eligibility the amounts above may be reduced if you fail to meet a testing period. If you are an existing HSA owner, the amounts above may be reduced if you fail to maintain your eligibility for the full tax year.

4. Can I fund my account at the family level if I have single coverage?
No, if you have single coverage you are limited to the individual HSA contribution limit. You may use your HSA funds to pay for the qualified medical expenses of family members (see Distributions below, question 6) however, the amount you may contribute to your HSA is limited by the level of your insurance coverage.

5. Do I need to fund my entire HSA all at once or can I fund it over time?
You can fund your account over time or all at once. Also, one of the large benefits for employees is that contributions are tax free; individuals’ contributions are made on a pre-tax basis, employer contributions are deductible as employer provided coverage for medical expenses and contributions on behalf of another family member are deductible (regardless of whether the person contributing itemizes their taxes).

6. How do I make additional contributions after I opened my HSA?
Simply write a check to your HSA provider and send it to that provider along with a HSA Contribution Form. This form clarifies the tax year of the contribution (remember, between January 1 and April 15, you can make a current or prior tax year contribution). Make sure to indicate the type of your contribution (regular or rollover) and include your account number.

7. What is a catch-up contribution?
Eligible individuals who are over age 55 but under age 65 are allowed to make additional "catch-up" contributions to their HSAs. The catch-up contribution is $1000.

8. Can both spouses make a catch-up contribution?
Yes; however, the catch-up amount cannot be combined and put into one HSA: each spouse must open an HSA and put the catch-up amount into his/her own respective HSA.

9. My employer only funded a portion of my HSA, can I still contribute to it?
Yes. You may fully fund your HSA up to the contribution limit (please see our Eligibility & Contribution Worksheet.)

10. I am age 65 and covered under an HDHP, can I still contribute to my HSA?
As long as you have not enrolled in Medicare Part A or B you are an eligible individual and may contribute to your HSA. Once you enroll in Medicare you may no longer contribute to your HSA. For most individuals this means you will no longer be eligible when you turn 65. You lose eligibility as of the first day of the month you turn 65. For example, if you turn 65 on July 21, you are no longer eligible for an HSA as of July 1. Your maximum contribution for that year would be 6/12 (you were eligible the first six months of the year) times the applicable federal limit (remember to include the catch-up amount in the federal limit).

11. What if I am only eligible part of the year?
If this is your first year of coverage under a HDHP and you start mid-year, you can contribute up to the full applicable federal limit; including a full catch-up amount if between ages 55-65, so long as you start your HDHP coverage no later than December 1 of that year. In this case; however, you will be subject to a testing period. The testing period requires that you maintain HSA eligibility for a period beginning on December 1 of the year you started and ending on December 31 of the next year. See our Testing Period Worksheet for details. If this is not your first year of the HSA and you stop your HSA eligibility mid-year, you are only allowed to contribute 1/12 of the applicable federal limit times the number of months you were eligible. Please see our Eligibility & Contribution Worksheet.

12. When do I have to make my contribution?
You can make your HSA contribution until your tax filing due date (April 15 of the year following the tax year for most people).

13. What if I was but no longer am eligible for an HSA, can I still make a contribution?
You can make an HSA contribution even if you are no longer eligible if you are making it for a period when you were eligible. For example, assume you were eligible all of 2011 but you never opened or funded an HSA. Starting in 2012, you are no longer eligible. You can still make an HSA contribution in 2012 for 2011 (because you were eligible in 2011). You must make the contribution by your tax filing due date, which for most people is April 15, 2012. Be careful as to how much you can contribute in a situation like this – (please see our Eligibility & Contribution Worksheet.)

Distributions

1. What can I spend my HSA funds on?
In general you can use your HSA funds to pay for any qualified medical expense. Qualified medical expenses are a defined term created by the IRS and include: medical care, non-prescription drugs, and payment for long term care. Over-the-counter drugs are no longer a qualified medical expense unless you have a prescription. View a more detailed list of qualified expenses [PDF]. Note that the qualified expenses must be incurred after the HSA has been established.

2. What expenses are qualified?
Expenses paid by the account beneficiary for medical care are covered. These expenses include: acupuncture, ambulance costs, artificial limbs, artificial teeth, bandages, birth control pills, contact lenses, crutches, doctor visits, some dental expenses, vision care (eyeglasses, contacts, Lasik surgery), hearing aids, lab fees, prescriptions, X-rays and many more. View a more detailed list of qualified expenses [PDF]. Generally, health insurance premiums are not qualified medical expenses however, in certain circumstances they can be qualified (e.g., certain amounts of Long Term Care Insurance or Medicare part A or part B for qualified individuals).

3. Can I withdraw the funds from my HSA account at any time?
Yes, however, if the funds are withdrawn for any expense other than a qualified medical expense, the IRS will impose a 10% penalty tax. After you reach age 65 you can withdraw the funds without penalty but the amounts withdrawn will be taxable as ordinary income.

4. What can I invest the funds in my HSA account in?
You can invest the funds in bank accounts, money markets, mutual funds and stocks. You may not invest in collectibles, art, automobiles or real estate. As the initial funds in your HSA may need to be used to for medical expenses, we recommend you maintain a small balance in your checking account and consider more liquid investments until you have a good estimate of your needs.

5. Am I required to track the expenditures made from my HSA?
Yes, the individual who establishes the HSA is required to maintain a record of the expenses sufficient to demonstrate that the distributions were for qualified medical expenses.

6. I have self only insurance coverage, can I use my HSA funds for my family members?
Yes, you may use your HSA to pay for the qualified medical expenses of any of your dependents so long as their expense is not otherwise reimbursed, see our Distribution Worksheet for more details.

7. I understand that I can reimburse myself from my HSA for qualified medical expenses that I pay out-of-pocket but is there a time limit? Do I need to reimburse myself in the same year?
You have your entire lifetime to reimburse yourself. As long as you had your HSA established at the time the expense was incurred, you save the receipt and it was not otherwise reimbursed, you can reimburse yourself for the expense from your HSA even years later.

8. Can I use my HSA to pay for health insurance premiums?
No, with the following three exceptions: (1) if the HDHP premium is part of a COBRA continuation coverage, (2) if you (the HSA owner) are currently receiving unemployment under a state or federal program, and (3) if the HSA owner is over age 65 and using the HSA to pay for medicare or an employer sponsored health plan.

9. Can I use my HSA to pay for Long Term Care Insurance?
Yes, HSA distributions used to pay for Long Term Care Insurance premiums qualify as a tax-free, penalty-free distribution; however, the amount is limited. The amount allowed is based on age and adjusted for inflation each year. See Revenue Code 213(d)(10).

Transfers/Rollovers

1. I have an MSA can I transfer this account into an HSA and what do I need to do?
Yes, an MSA can be rolled over into an HSA. The process is very simple and straightforward. Simply complete an MSA Rollover Application and submit it to your HSA provider.

2. Are there any limits on the amount I have to spend or on the amount I can carry over to subsequent years?
No, there are no limits and the entire balance can be carried over from year to year.

3. Special rules for age 55 and older---Additional contribution amounts?
For individuals age 55 to 65 the rules allow for a special contribution amount of $1000.

4. Can I transfer my IRA into an HSA?
Yes, the law allows a one-time transfer of IRA assets to fund an HSA. The amount transferred may not exceed the amount of one year's contribution and individuals must be otherwise eligible to open an HSA. Transfers are not taxable as IRA distributions however; amounts transferred into an HSA from an IRA are not deductible. See our IRA to HSA Worksheet.

Accessing your HSA funds after age 65

1. How do I access the funds after I reach age 65?
Once you reach age 65 your funds can be withdrawn at any time and are only subject to ordinary income tax. However, you may avoid any tax by continuing to use the funds for qualified medical expenses. For those over age 65 premiums for Medicare Part A or B, Medicare HMO and employee premiums for employer sponsored health insurance can be paid from an HSA.

2. Can I use my HSA funds to pay for Medicare part A or part B premiums after I reach age 65 or do I need to wait until my spouse is also 65?
Yes, when one of you starts receiving and getting billed for Medicare, you can use the HSA to pay those Medicare costs (or reimburse yourself if Medicare is taken directly out of your Social Security Check). Of course, as soon as you hit age 65 and accept Medicare you are no longer eligible to contribute to the HSA (starting in the month of your 65th birthday). An eligible spouse under age 65 can continue to contribute to their HSA and may use that HSA to pay for other spouse’s Medicare part A or part B premiums.

HSA Custodian Questions

1. How do you report ATM fees for an HSA?
Banking fees may be deducted directly from the HSA and not reported as a distribution. This treatment works well for the HSA owner because it allows the individual to pay banking fees tax free. Individuals that want to maximize their HSA contribution amount can pay HSA banking fees separately and outside of the HSA. In that case, the fee is not counted as a contribution or a distribution because it is not in the HSA. The individual may be able to deduct the expense as a banking fee on their tax return. From a practical perspective, this would be difficult to do for ATM fees so it may make more sense to require that those fees be deducted from the HSA.

2. Is the HSA custodian responsible for tracking a once in a lifetime IRA transfer?
An HSA custodian has no method to track this because the HSA owner could do so at another financial institution.

3. How does the return of a mistaken distribution work? Does the custodian need to obtain clear and convincing evidence from the employee prior to withdrawing mistaken distributions?
The IRS allows HSA custodians and trustees to accept returns of mistaken distributions from HSA owners. This means that if an HSA owner uses his or her HSA account to pay a non-medical bill by mistake or otherwise ends up with a mistaken distribution (for example, the insurance company said they would not pay but then did pay after the HSA owner already paid with HSA funds), the HSA owner can return the funds. The rule is only for mistakes and the IRS requires that the HSA owner needs to have clear and convincing evidence that it was a mistake, if audited. HSA custodians and trustees do not have to offer this option.

4. Can an HSA custodian or trustee offer overdraft protection on an HSA account?
Generally, no. The extension of credit to an HSA owner by an HSA custodian or trustee is a prohibited transaction.