The IRS has just released Revenue Procedure 2010-22 which provides the inflation adjusted amounts for Health Savings Accounts effective for calendar year 2011. According to the IRS, the amounts for 2011 are the same as the amounts for 2010. The annual contribution limit for 2011 for an individual with self-only coverage under a high deductible plan is $3,050. The amount an individual with family coverage may contribute is $6,150. 

To open or contribute to an HSA you must meet certain eligibility requirements. Specifically:

• You must be covered by a qualified high deductible health plan on the first day of the month
• You cannot be covered by any other health plan that is not a qualified high deductible health plan, including spouse’s health insurance
• You cannot be covered by spouse’s Medical FSA
• You cannot be enrolled in Medicare Part A or Part B
• You cannot be covered by TriCare
• To make contributions you cannot have accessed your VA medical benefits in the past 90 days
• You may not be claimed as dependent on another person’s tax return

Please feel free to contact us if you have any questions about HSAs with Health Savings Administrators.

In reviewing the 1018-page House Bill on health reform there appear to be a few issues that could negatively impact health savings accounts. There is a limit on the out-of-pocket costs that could effectively narrow the plan design for HSAs. The limits set in the bill set a max-out-of pockets (single/family) of  $5,000 and $10,000. There is a provision to increase them annually based on the CPI.

It is possible that the penalty for non-medical withdrawals from the HSA could increase from 10% to 20%. For most HSA owners this would be a non-issue.

And it is possible that the over-the-counter drug expense allowance would be repealed.

In any case, it appears that nothing will be done until September when Congress returns form its recess.

The maximum contributions that can be made to health savings accounts in 2010 will increase as will the minimum deductible imposed by health insurance plans linked to HSAs and the maximum out-of-pocket expenses that employees can be required to pay.

The maximum contribution that can be made to an HSA in 2010 for employees with single coverage will be $3,050. The maximum HSA contribution for those with family coverage will rise to $6,150.

Account holders age 55 or older may add $1,000 to the numbers above as their catch-up contribution.

Additionally, the maximum out-of-pocket expense, including deductibles, that employees can be required to pay next year will rise to $5,950 for single coverage, and $11,900 for family coverage.

The minimum deductible of the high-deductible health insurance plan to which HSAs must be linked will increase next year to $1,200 for single coverage and $2,400 for family coverage.

The most common question about HSA contributions is “What should be reported in Box 12?”

The confusion stems from the label of “employer contributions.” Both the employee and employer contributions should be showing in box 12, code W.   IRS Publication 969, for tax year 2008 ( page 10)  indicates that contributions made by the employer via salary reduction are not included in the employee’s  income.  Contributions to an employee’s account by an employer using the amount of  an employee’s salary reduction through a cafeteria plan are treated as employer contributions.  Thus the total is displayed on the W2.

Therefore, the amount in Box 12 will include all of the employee payroll deductions and any employer money contributed. This is PRE-TAX money and gets reported on Form 8889 (required of all HSA account owners) as an EMPLOYER contribution (Line 9). Because there were no taxes deducted form this amount the employee/taxpayer cannot deduct it from gross income. Continue reading »