How Do HSAs (Health Savings Accounts) Work?
What HSAs are and how they work It seems to me that a lot of people are confused about HSAs and what they really are.
Health Savings Accounts are comprehensive health plans designed for those looking to take control of their health care spending.
These are high deductible plans that let you pay your out of pocket expenses and other qualified fees with tax free dollars.
An HSA may receive contributions from an eligible individual or any other person, including an employer or a family member, on behalf of an eligible individual.
Contributions, other than employer contributions, are deductible on the eligible individual's tax return whether the individual itemizes deductions or not.
Employer contributions are not included in income.
Distributions from an HSA that are used to pay qualified medical expenses are not taxed.
Here's how they work.
You purchase a qualified high deductible health care plan and then open a health savings account with your bank or credit union.
A qualified high deductible health care plan has a $1200 individual and $2400 family deductible.
This plan can also only have a maximum annual out of pocket of $5950 for an individual and $11,900 for a family.
As a single you may deposit up to $3100 into the HSA account, and as a family or couple $6250 annually.
You then deduct that amount from your income taxes thereby making the money in the account tax free.
Some of the fees that you can pay with your tax free dollars are:
The money in the account rolls over from year to year and you never lose it and most financial institutions pay a nominal interest rate on the account.
In 2010 you were able to use these funds for over the counter medications, as of 2011 you can no longer pay for over the counter medications from an HSA, only medications that require a prescription.
There are many other qualified expenses that can be paid from your Health Savings Account.
If however you use the money in this account to pay for expenses that are not qualified, not only will you pay the normal income tax, but also a penalty of 20%.
It is important to make sure that your expenses are qualified before paying for them with an HSA.
Please go to http://www.
irs.
gov to find out more.
Health Savings Accounts are comprehensive health plans designed for those looking to take control of their health care spending.
These are high deductible plans that let you pay your out of pocket expenses and other qualified fees with tax free dollars.
An HSA may receive contributions from an eligible individual or any other person, including an employer or a family member, on behalf of an eligible individual.
Contributions, other than employer contributions, are deductible on the eligible individual's tax return whether the individual itemizes deductions or not.
Employer contributions are not included in income.
Distributions from an HSA that are used to pay qualified medical expenses are not taxed.
Here's how they work.
You purchase a qualified high deductible health care plan and then open a health savings account with your bank or credit union.
A qualified high deductible health care plan has a $1200 individual and $2400 family deductible.
This plan can also only have a maximum annual out of pocket of $5950 for an individual and $11,900 for a family.
As a single you may deposit up to $3100 into the HSA account, and as a family or couple $6250 annually.
You then deduct that amount from your income taxes thereby making the money in the account tax free.
Some of the fees that you can pay with your tax free dollars are:
- Deductibles
- Birth control pills
- Coinsurances
- Acupuncture
- Prescriptions
- Eye surgery
- Dental care
- Hearing aids
- Vision care.
- Long term care/nursing homes
The money in the account rolls over from year to year and you never lose it and most financial institutions pay a nominal interest rate on the account.
In 2010 you were able to use these funds for over the counter medications, as of 2011 you can no longer pay for over the counter medications from an HSA, only medications that require a prescription.
There are many other qualified expenses that can be paid from your Health Savings Account.
If however you use the money in this account to pay for expenses that are not qualified, not only will you pay the normal income tax, but also a penalty of 20%.
It is important to make sure that your expenses are qualified before paying for them with an HSA.
Please go to http://www.
irs.
gov to find out more.