• 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.

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And it is possible that the over-the-counter drug expense allowance would be repealed.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

However, if the employee were to send money directly to the HSA, that amount would be reported on line 2 of Form 8889. The total of lines 2 and 9 cannot exceed the maximum annual contribution limits set by the IRS for the applicable tax year.

A friendly reminder to employees enrolled in the HSA informing them of the requirement to complete Form 8889, along with the explanation above, might reduce some of the questions directed to your HR department.

More info for the employees – Two tax forms will be sent to the employee/taxpayer, and to the IRS. The first is Form 1099-SA. This form is sent no later than January 31. Form 1099-SA tells you what distributions have been made from the health savings account during the calendar year. The amount in Box 1 of your 1099-SA will be reported on Form 8889.

The second form is Form 5498-SA. This form is sent out no later than May 15, but definitely after the tax filing deadline of April 15. Form 5498-SA cannot be sent any earlier because taxpayers have until April 15 to make contributions to the prior year’s HSA. This form included ALL contributions made between January 1 of the reportable tax year (e.g. 2008) and April 15 of the following tax year (e.g. 2009). Box 1 will be blank unless you have an MSA. Box 2 will have all the contributions to your HSA made in 2008, including any contributions made for 2007 in 2008. Do not report this on your Form 8889. Box 3 has the HSA contributions made in 2009 for 2008. Note that both boxes 2 and 3 may, or may not, match the amount reported on line 2 of Form 8889.

1. Single accounts (only one person covereed on the health insurance policy)—$3,000.00
2. Family accounts ( multiple people covereed on the health insurance policy)—$5,950.00
3. Additional contribution for account holders who attain age 55 by December 31, 2009—$1,000.00

Contribution tips:

It’s not too late to make 2008 contributions. You have until April 15 to finalize your prior year’s contribution.

You can make the full year’s contribution any time after January 1 of the tax year.

 Q-2. May an otherwise eligible individual who is eligible for Medicare, but not enrolled in Medicare Part A or Part B, contribute to an HSA?

 A-2. Yes. Section 223(b)(7) states that an individual ceases to be an eligible individual starting with the month he or she is entitled to benefits under Medicare. Under this provision, mere eligibility for Medicare does not make an individual ineligible to contribute to an HSA. Rather, the term “entitled to benefits under” Medicare means both eligibility and enrollment in Medicare.

Thus, an otherwise eligible individual under section 223(c)(1) who is not actually enrolled in Medicare Part A or Part B may contribute to an HSA until the month that individual is enrolled in Medicare.

Example (1). Y, age 66, is covered under her employer’s HDHP. Although Y is eligible for Medicare, Y is not ctually entitled to Medicare because she did not apply for benefits under Medicare (i.e., enroll in Medicare Part A or Part B). If Y is otherwise an eligible individual under section 223(c)(1), she may contribute to an HSA.  

Example (2). In August 2004, X attains age 65 and applies for and begins receiving Social Security benefits. X is automatically enrolled in Medicare. As of August 1, 2004, X is no longer an eligible individual and may not contribute to an HSA.  

Q-4. Is a government retiree who is enrolled in Medicare Part B (but not Part A) an eligible individual under section 223(c)(1)?

 A-4. No. Under section 223(b)(7), an individual who is enrolled in Medicare may not contribute to an HSA.