HSA - Eligible Expenses in 2020

  • 23 Sep 2020
  • Posted by dfitzgerald

Wondering what you can use your Health Savings Accounts funds for?

Much like the yearly contribution limits, the IRS is continually updating what items are considered qualified medical expenses. Qualified medical expenses define what you can use your HSA funds for.  Under the Cares Act 2020, those rules were expanded to cover several valuable items, such as over-the-counter medication, PPE equipment, and telehealth services. These additions are especially useful in today's conditions. Take a look below:

HSA Qualified Expenses

Download Eligible Expenses 

If you'd like to learn about Howard Bank's Health Savings Accounts, visit our webpage.  If you're looking for general information about Health Savings Accounts, visit the IRS webpage

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Coronavirus & Health Savings Accounts

  • 10 Sep 2020
  • Posted by ccrossen

The situation surrounding the coronavirus is ever-changing, but the impact it has on our daily lives cannot be ignored. Some of us may be adapting to working from home, homeschooling our children, recovering from a job loss, or fighting on the front lines. We’re all feeling the financial impacts of this health crisis, but health insurance doesn’t have to be one of them.

Coronavirus has taught us that planning for unexpected medical expenses is a must. A Health Savings Account, or HSA, is a great way to do so. An HSA is a triple tax-sheltered account that helps pay for certain medical expenses if you have a High Deductible Health Plan. HSA contributions are tax-deductible and certain withdrawals are tax-free. Similar to 401k(s), earnings on the account grow tax-free.

If your employer doesn’t offer an HSA, you can still open one at a bank, broker, or credit union if you are eligible. Eligibility may vary but you must only be enrolled in a High Deductible Health Plan (HDHP), and you cannot be enrolled in Medicare or claimed as a dependent on another person’s tax return. Some institutions may charge you to open an account or charge a fee that can be waived if you keep the minimum balance in the account. Howard Bank offers interest paid on all balance tiers with no opening minimum to open and no minimum balance.

A Health Savings Account is not to be confused with a Flexible Savings Account (FSA). While both are used for health costs, offered by employers, and funded with pre-tax contributions, Flexible Savings Accounts don’t allow you to roll over your money. With an HSA, your money stays with you and never expires. So, if you’ve been furloughed or laid off due to the pandemic, premiums for health care continuation coverage under COBRA are considered an eligible medical expense, therefore, can be paid using HSA funds. An HSA can also act as an additional retirement fund. HSA contributions can be invested in mutual funds or other investments. If you are fearful that market volatility may reduce your HSA funds, you can simply leave the funds in a tax-sheltered bank account.

Covid-19 has broadened the spectrum of qualified HSA expenses and reimbursements. For instance, under the CARES Act, you are now able to use your HSA funds for personal protective equipment (PPE), Covid-19 testing, or telehealth services. Also, over-the-counter products and medicines purchased without a prescription since January 1, 2020, are now eligible for reimbursement. This includes pain relievers for cold and flu-related symptoms, menstrual products, contact lenses and solution, thermometers, bandages, and batteries for medical devices. 

Covid-19 has not only motivated people to open HSAs but to contribute more than they were previously. Doing so helps to ensure you’re better prepared for future health expenses, including during retirement. The HSAs contribution limits and coverage are decided annually, so it is best to check the IRS website for the most up-to-date information.

Explore our HSA page to learn more and apply online today.

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Health Savings Accounts: Mistakes to Avoid

  • 24 Oct 2019
  • Posted by dfitzgerald

More people are signing up for Health Savings Accounts (HSAs) than ever before. As of last year, about 25 million Americans were enrolled in one, up 13 percent from 2017. Indeed, the current requirements to qualify for an HSA as an individual are fairly simple: you must be covered under a high deductible health plan (HDHP); that you have no other health coverage (with a few straightforward exceptions); that you aren’t enrolled in Medicare; and that you can’t be claimed as a dependent on someone else’s tax return. By placing money in an interest-bearing HSA, you can save for future qualified medical expenses while allowing your HSA account balance to grow tax-free.*

As more employers and individuals turn to HDHPs because of their lower premiums, more individuals are discovering that they are qualified for an HSA. If you’re among them, this list will help shed light on some of the most common mistakes people make with HSAs, and how to avoid them.


Contributing Too Little, Or Too Much
Determining how much to contribute to your HSA is different for everyone, of course, and variables include everything from how much you’re making to your current and anticipated medical expenses. 

Annual contribution limits for 2019 are $3,500 for individuals, $7,000 for families and an additional $1,000 for people 55 and older.

One factor in deciding how much to contribute is your own risk tolerance. For instance, how concerned you feel about the likelihood of an illness or life event that may occur. Then, you may want to consider contributing a robust amount to your HSA. Those more comfortable with betting they’ll continue to stay healthy and have significant monthly expenses may consider contributing less.

Regardless of how much you choose to contribute, many experts agree that participating is a good idea.  You can use your HSA funds today or save them for future qualified medical expenses.  HSAs can be a great tool for retirement planning in terms of health care spending.  Most employers allow HSA contributions to be deducted from their employees’ paycheck at pre-tax dollars and deposit funds directly to their HSA.
 


Losing Track of the IRS’s Contribution Restrictions
The IRS will penalize you if you contribute too much to your HSA, period. The penalty is a 6 percent excise tax, which accrues every year the excess goes uncorrected. That’s why it’s important to stay on top of how much you’re allowed to contribute from year to year, because these figures will change annually. Once you become aware of the excess contribution, notify your bank immediately so proper documents are completed to withdraw the excess from your account.*


Using HSA Fund Money for Non-Qualified Purposes
The IRS frowns on the misuse of HSA funds — to the tune of a 20 percent penalty for non-qualified expenses and liability for income taxes upon withdrawing funds.  You may withdraw money for purposes that are not IRS-eligible.  In this case, your contributions remain tax-free in the year they were made, your account growth remains tax-deferred, but you must include your distribution as taxable income in the year withdrawn and pay 20% penalty, if applicable.*



Not Correcting Mistaken Contributions or Withdrawals
Fortunately, the IRS accounts for the fact that over-contributing and mistaken charges happen to the most well-intentioned HSA participants, which is why there is recourse if you stumble into one of these circumstances. Say, for example, you pay a medical bill using funds saved in your HSA; later you are reimbursed because you didn’t realize that expense was fully covered by your insurance. The money in such case must be returned to your HSA to avoid a penalty. It’s that simple.


Confusing HSA Rules with FSA Rules
There are major differences between HSAs and Flexible Spending Accounts (FSAs), but one wouldn’t be alone in confusing their specific qualities. Among the big ones you’ll want to pay attention to:

  • Your hard-earned HSA funds can be rolled over to subsequent years’ savings. That is NOT the case with FSA funds, which require participants to spend down the money in their accounts before the end of the year or forfeit those funds entirely. 
     
  • Your HSA will follow you when you change jobs. With few exceptions, this is not the case with money in your FSA fund.
     
  • HSA funds are more flexible in the sense that you can change the amount you choose to contribute at any time. With FSAs, you can only change your contribution amount during open enrollment or under other very specific circumstances.

 

*Consult your tax advisor

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Is A Health Savings Account Right For You?

  • 01 Oct 2019
  • Posted by dfitzgerald

When you’re choosing a health plan, many factors may affect your decision. If you want an option with flexibility, a high level of choice and tax-advantaged savings, a high-deductible health plan with a Health Savings Account (HSA) might be the right choice for you.

What is an HSA?

HSAs are tax-advantaged savings accounts that accompany high-deductible health plans (HDHPs). They’re often seen as a great way to save money and efficiently pay for medical expenses.

HSAs were created in 2003 to provide individuals who have HDHPs with a tax-preferred method of saving money for medical expenses. There are certain advantages to putting money into these accounts, including favorable tax treatment*. The rationale behind the HSA/HDHP combination is that people will have a clearer idea of their medical costs and more control over their spending, enabling them to potentially reduce their medical costs.

HSA money can be used tax-free when paying for qualified medical expenses, helping you pay your HDHPs larger deductible. At the end of the year, you keep any unspent money in your HSA. This rolled over money can grow with tax-deferred earnings, and it’s used to pay for qualified medical expenses, then the money will continue to be tax-free.

To learn more about qualified medical expenses, please visit www.irs.gov.

Is an HSA right for you?

HSAs are a fast-growing trend in health care and offer many advantages, but whether it’s the right choice for you depends on several factors.

Comparing HSA/HDHPs to traditional health plans can be difficult, as each has pros and cons. For example, traditional health plans typically have higher monthly premiums, a smaller deductible, and fixed co-pays. You pay fewer out-of-pocket costs due to the lower deductible, but you will pay more each month in premiums.

HDHPs with HSAs general have lower monthly premiums and a higher deductible. You may pay more out-of-pocket medical expenses, but you can use your HSA to cover those costs, and you pay less each month for your premium.

The decision is different for each individual. If you are generally healthy and/or have a reasonable idea of your annual health care expenses, then you could save a lot of money from the lower premiums and valuable tax-advantaged account with an HSA/HDHP plan. For example, even someone with a chronic condition could take advantage of an HSA/HDHP plan if he or she has a good idea of his/her annual expenses and then budgets enough money to cover the cost of care.

However, if you are prone to illness or unexpected medical conditions, or prefer certainty in medical costs over the possible risk of unexpected out-of-pocket expenses, you may want to stick with a traditional plan.

How exactly do HSAs work?

To have an HSA and make contributions to the account, you must meet several basic qualifications. Here’s what you need to know to start saving with an HSA:

HSA Eligibility 

  • You must have coverage under an HSA-qualified, high-deductible health plan.
  • You must have no other health insurance plan (this exclusion does not apply to certain other types of insurance such as dental, vision, disability or long-term care coverage).
  • You are not enrolled in Medicare.
  • You cannot be claimed as an independent on someone else’s tax return.

To qualify as an HDHP, a health plan must satisfy requirements for the minimum annual deductible and the maximum out-of-pocket expenses.

In 2019, the minimum annual deductible for a qualifying HDHP was $1,350 for individual coverage and $2,700 for family coverage.

In addition, annual out-of-pocket expenses under the plan (including deductibles, co-pays, and co-insurance) cannot exceed $6,750 for single coverage and $13,500 in 2019 for family coverage.

Contributions

  • Contributions to your HSA can be made by anyone, including you, your employer or a family member. The combined contributions of you and your employer (and anyone else making contributions) cannot exceed the HSA maximum contribution limit.
  • Contributions to the account must stop once you are enrolled in Medicare. However, you can still use your HSA funds to pay for medical expenses tax-free.
     

Annual contribution limits for 2019 are $3,500 for individuals, $7,000 for families and an additional $1,000 for people 55 and older.

An HSA is managed and controlled by the account holder, giving you the choice of when to use your HSA dollars. The money in it belongs to you—not your employer or insurance company.

*Consult your tax advisor.

 

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