Health Savings Account Rules & Benefits – Paul Gaulkin CPA

couple looking at healthcare plansThe health savings account was created in 2003 and shares many characteristics of the Archer MSA program. Like MSAs, HSAs are trusts created solely to pay the qualified medical expenses of an account beneficiary and call for an individual to:

1. Buy a high deductible health insurance policy, and
2. Make tax deductible contributions to the trust

Contributions made to the trust and any earnings are tax deferred for as long as they remain in the trust. HSA account holders may withdraw funds from the trust to pay qualified healthcare expenses for which they are in need of. In the event the account holder’s expenses for healthcare exceed the policy’s deductible, those expenses are covered, in whole or in part, by the healthcare insurance that is held within the trust.

Distributions from the HSA may be taken by an account holder at any time but are not always tax free. If the distribution is taken to pay or be reimbursed for qualified healthcare expenses, such distributions are tax free. If taken for any other reason, the distributions are taxable as ordinary income and may be subject to a tax penalty depending on the circumstances.

HSA Eligibility

Unlike the eligibility requirements of an Archer MSA, HSA requirements are far less strict and offer a much friendlier program. An individual eligible to establish an HSA is one who meets the following requirements:

1. Is covered under a high deductible health plan on the first day of the month
2. Has no other health coverage except for certain specified coverages
3. Is not enrolled in Medicare
4. Cannot be claimed as a dependent on another person’s tax return for the year

The specified types of coverage the individual is allowed to hold within the trust are policies covering specified diseases, disability insurance, fixed daily hospitalization benefits, dental or vision, accident insurance, and long term care insurance.

If a taxpayer meets these eligibility requirements, he or she is an eligible individual even if the taxpayer’s spouse has a non high deductible health plan, provided the spouse’s coverage does not cover the taxpayer.

HSA Benefits

The following are some of the many benefits of establishing an HSA:

1. A taxpayer can claim a tax deduction for contributions made to the HSA even if he or she does not itemize deductions

2. Contributions made to the HAS by the taxpayer’s employer, including contributions made through a cafeteria plan, may be excluded from the taxpayer’s gross income

3. The earnings on amounts contributed to the HSA are tax deferred

4. Distributions from an HSA to pay qualified medical expenses are entirely tax free

5. A taxpayer’s contributions and earnings, if any, remain in the HSA from year to year until the taxpayer uses them

As you can see there are many benefits that come along with establishing an HSA for your health insurance needs and expenses.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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