What is it?
HSA’s are individual savings accounts that pay for qualified health care expenses tax-free. To open an HSA, you must be enrolled in a qualifying high deductible health plan (HDHP). You decide how much you want to contribute to the plan each year up to a limit set by the IRS.
How does it benefit me?
- Reduces your insurance premiums and increases your take-home pay by decreasing taxes.
- Rolls over from year-to-year and stays with you even if you change employers.
- Earns interest tax-free.
- Pays for eligible health care expenses with an HSA debit card.
What else do I need to know?
- You must keep proper documentation of eligible expenses, like an Explanation of Benefits statement from your insurance company or receipt for over-the-counter medications.
- Ineligible withdrawals are subject to a 20% penalty tax.
- Once you have an account, you can stop, re-start or change your contribution amount at any time.
How does an HSA work?
When you register for a HSA, a bank account is setup through DataPath Administrative Services. They maintain your account and process your transactions: withdrawals, contributions, or investment reallocations.
You and/or your employer can make contributions to your HSA up to a maximum amount set by the IRS each year (both of you can contribute in the same tax year), and all contributions are not taxable to you. If you are age 55 or over, “catch-up” contributions up to $1,000 per year are allowed. You are not allowed to make contributions once you are eligible for Medicare.
You can choose to invest your HSA in a variety of mutual funds to help pay for future medical, dental and vision expenses. After your account is established, you may use the balance in your account to pay for qualified medical expenses. The account stays with you regardless of your employment status. And you can continue to contribute to it, so long as you remain a participant in a HDHP.
You must keep records of all distributions from your HSA to show that funds were exclusively used for qualified medical, dental or vision expenses and not paid by another source. Medical expenses incurred before your HSA was established are not eligible.
After you’ve enrolled in an HSA account, you will receive a debit card to pay for eligible expenses. It is designed to work at merchants with a healthcare merchant category code, such as a doctor’s office or hospital, or retail merchants which have an Inventory Information Approval System (IIAS) in place, such as a pharmacy.