How do HSA contributions work and are there any limits?

Contributions can be made by you, your employer, or a third party (e.g. family member or friend). Contributions can either be made on a tax-free basis through a Section 125 Plan or directly into the account on a tax-deductible basis. The IRS sets the maximum annual contribution limit. Generally, HSA contributions do not have to […]

What happens if I use the funds for ineligible expenses?

An HSA allows you to withdraw funds for any reason. However, you would need to pay ordinary tax and an additional penalty of 20% on any funds that are withdrawn for an ineligible expense. You are responsible for determining if an expense is an eligible medical expense and maintaining receipts for tax reporting and potential […]

What is my contribution limit if I become ineligible?

If you become ineligible to contribute to an HSA, (e.g. you have lost HSA-compatible health plan coverage or you have ineligible coverage), you will need to take the annual contribution limit and prorate it based on the number of months you were eligible.

Does an excess contribution affect my tax reporting?

If you have an excess contribution that remains in the HSA when you file your taxes, you will report the excess contribution. The funds will be taxed at the ordinary tax rate plus an excise tax. If you remove an excess contribution during a tax year, you will receive a 1099-SA document outlining the distribution. […]

How do I correct an excess contribution?

To correct an excess contribution, you must request the HSA trustee/custodian (UMB Bank) to remove the funds from the HSA as an excess contribution. The request must include your name, bank account number, and instructions to remove the funds as an excess contribution. The HSA trustee/custodian will process the request and send you a check […]

How do I prorate contributions?

If you determine you want or need to prorate contributions, you will need to take the annual contribution limit and prorate it for the number of months you were HSA eligible. Annual Contribution Limit ÷ 12 months × number of eligible months = Prorated Contribution

What happens if I contribute more than the IRS limit in one year?

Contributions in excess of the IRS limit are subject to tax penalties. The combination of employee, employer and third party contributions may not exceed the annual IRS limits. If you are required to prorate your contribution limit, the prorated contribution will apply. In order to avoid the tax penalties, the IRS allows you to remove […]

How is an HSA “established”? Why does establishing an HSA matter?

An HSA is a custodial account (similar to an IRA) and must be “established” before you are eligible to make withdrawals from your HSA. Through Benefit Resource’s partnership with UMB Bank (as the trustee/custodian), an account is considered established on the later of a) the date you are first eligible for the HSA or b) when […]

How is HSA activity reported for tax purposes?

The trustee/custodian of the account provides you and the IRS with IRS Form 5498-SA reporting all contributions to the account and IRS Form 1099-SA reporting distributions from the account. Tax-free contributions are reported on your W-2. Use these documents to complete IRS Form 8889, which is submitted with your Federal tax return.

What can I use HSA funds for?

An HSA is designed to pay for any eligible medical expenses for you, your spouse or eligible dependents. This includes expenses paid toward deductibles, co-insurance, vision and dental.

What kinds of coverage would make me HSA ineligible?

Any health plan that is not an HSA-compatible plan would make you ineligible for an HSA. This includes coverage under a spouse’s plan which is not an HSA-compatible plan and coverage under a General Medical FSA or HRA. While you cannot be covered under a General Medical FSA or HRA, you should check with your […]

Who is eligible for an HSA?

To be eligible for an HSA, you must only be covered by an HSA-compatible health insurance plan, not enrolled in Medicare and not claimed as a dependent on another person’s tax return. Your eligibility to contribute to an HSA is determined on the first of each month.

What is an HSA-compatible health plan?

An HSA-compatible health plan is a health insurance plan that meets the guidelines set by the IRS regarding deductibles, out-of-pocket expenses and acceptable coverage. The health plan cannot provide benefits before the deductible is met, except for preventive care services. All co-payments or co-insurance (e.g. prescription drug costs) must be counted toward the deductible and […]