Health savings account
From Wikicpa
Health Savings Account's (HSAs) operate similar to flexible spending accounts (FSAs) that some employers currently offer to their employees who want to defer their own money into an account on a pretax basis to be used to reimburse their out-of-pocket medical expenses. These funds may then be withdrawn tax-free to reimburse the account beneficiary for out-of-pocket medical expenses. Unlike an FSA, however, whatever’s left in the HSA at year-end can be carried over to the next year. In addition, HSAs can be set up by the self-employed or even a nonworking spouse.
The most significant requirement is that HSAs are only available to individuals who only carry health insurance coverage with relatively high annual deductibles. By that, we mean their 2007 health insurance coverage must come with at least a $1,100 deductible for single coverage or $2,200 for family coverage.
The other requirements for setting up an HSA are that an individual can’t be eligible for Medicare benefits or claimed as a dependent on another person’s tax return. For individuals who can meet these requirements, they can make tax deductible HSA contributions for 2008 that are limited to the lesser of:
1. Their insurance plan’s deductible amount (which must be $1,100 or more for self-only coverage or $2,200 or more for family coverage), or
2. $2,900 for single coverage or $5,800 for family coverage.
If the HSA beneficiary is 55 or older as of the year-end, they are allowed to increase the contribution limited that would otherwise apply by $900 for 2008 ($1,000 for 2009) If an individual satisfies the HSA rules for only part of the year, the annual contribution limited is prorated based on the number of months the rules are met.
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Setting up an HSA
An HSA can be set up at a bank, insurance company or other IRS approved entity. The HSA must be established for the sole purpose of paying the beneficiary's qualified medical expenses.
The tax rules for HSAs are quite similar to IRAs. You can make your HSA contribution for the previous year as late as April 15 of the following year.
2007 update
For tax years beginning after 2006, there's no longer any direct link between the annual HSA contribution limit and the annual deductible for the taxpayers high-deductible health plan coverage.
Historical Health Savings Account data
| Year | Minimum Deductible - Self coverage | Minimum Deductible - Family coverage | Maximum Deductible - Self coverage | Maximum Deductible - Family coverage | Catch-up Contribution | Out-of pocket Limit - Self coverage | Out-of pocket Limit - Family coverage |
|---|---|---|---|---|---|---|---|
| 2008 | $1,100 | $2,200 | $2,900 | $5,800 | $900 | $5,500 | $11,000 |
| 2007 | $1,100 | $2,200 | $2,850 | $5,650 | $800 | $5,500 | $11,000 |
| 2006 | $1,050 | $2,100 | $2,700 | $5,450 | $700 | $5,250 | $10,500 |
| 2005 | $1,000 | $2,000 | $2,650 | $5,250 | $600 | $5,100 | $10,200 |
"Catch-up contribution are available each year to individuals who reach age 55 by the end of the year.
