Health Savings Account (HSA) 2021 • Frequently Asked Questions
What is an HSA?
An HSA is a tax-exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of the account beneficiary who is covered under a high-deductible health plan.
Who is eligible to establish an HSA?
An “eligible individual” means any individual who: 1) is covered under a qualified high-deductible health plan on the first day of each month; 2) is not also covered by any other health plan that is not an high-deductible health plan; 3) is not entitled to benefits under Medicare (generally, has not yet reached age 65); and 4) may not be claimed as a dependent on another person’s tax return.
What is a “qualified high-deductible health plan” (HDHP)?
For self-only coverage a HDHP must have an annual deductible of at least $1,400 and annual out-of-pocket expenses required to be paid (deductibles, co-payments and other amounts, but not premiums) not exceeding $6,690. For family coverage, a HDHP has an annual deductible of at least $2,800 and annual out-of-pocket expenses required to be paid not exceeding $13,800.
How does an eligible individual establish an HSA?
Beginning January 1, 2004, any eligible individual can establish an HSA with a qualified HSA trustee or custodian, in much the same way that individuals establish IRA’s or Archer MSA trustees or custodians. No permission or authorization from the Internal Revenue Services is necessary to establish an HSA.
Who may contribute to an HSA?
Any eligible individual may contribute to an HSA. For an HSA established by an employee, the employee, the employee’s employer or both may contribute to the HSA of the employee in a given year. For an HSA established by a self-employed (or unemployed) individual, the individual may contribute to the HSA. There is a onetime exemption that will allow money from an IRA to fund your HSA. You may also be able to roll unused balances in an FSA’s or HRA’s into a HSA. Family members may also make contributions to an HSA on behalf of another family member as long as that other family member is an eligible individual.
How much may be contributed to an HSA?
For 2021 the maximum annual contribution for eligible individuals with self-only coverage under a HDHP is $3,600. For eligible individuals with family coverage under a HDHP, the maximum annual contribution is $7,200. Exception: If an individual does not stay on the HSA-eligible plan 12 months following the last month of the year of the first year of eligibility, the amount which might have been contributed will be included in income and subject to a 20 % additional tax. “Catch-up contributions” are also available for individuals (and spouses) age 55 or older. In 2021 the catch-up contribution remains $1,000.
What are “qualified medical expenses”?
See IRS.gov website. IMPORTANT: After 2012, your Health Savings Account (HSA) CANNOT be used for over-the-counter drugs, unless they are prescribed by your doctor.
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