Health Savings Accounts

Posted: July 7, 2012 in Uncategorized
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Health Savings Accounts (HSAs) were created in 2003 so that individuals covered by high-deductible health plans could receive tax-preferred treatment of money saved for medical expenses. Generally, an adult who is covered by a high-deductible health plan (and has no other first-dollar coverage) may establish an HSA. It provides a way to save money to help pay for current or future qualified medical expenses on a tax-free basis. Rules governing the tax status of HSAs are covered in IRS Publication 969. The HSA is a tax-exempt trust or custodial account that you set up with a qualified HSA trustee to pay or reimburse certain medical expenses that you incur. You must be an eligible individual to qualify for an HSA. No permission or authorization from the IRS is necessary to establish an HSA. When you set up an HSA, you will need to work with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be established through a trustee that is different from your health plan provider. To be eligible for an HSA:
 You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month.
 You have no other health coverage except what is permitted under Other health coverage, later.
 You are not enrolled in Medicare.
 You cannot be claimed as a dependent on someone else's tax return.
The benefits of an HSA are:
 You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040.
 Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
 The contributions remain in your account from year to year until you use them.
 The interest or other earnings on the assets in the account are tax free.
 Distributions may be tax free if you pay qualified medical expenses. Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. These are explained in IRS Publication 502, Medical and Dental Expenses. Note. Non-prescription medicines (other than insulin) are no longer considered qualified medical expenses
 An HSA is “portable” so it stays with you if you change employers or leave the work force.
On 5 JUN Congressman Charles W. Boustany, Jr., M.D. (R-LA) introduced H.R.5858, “To amend the Internal Revenue Code of 1986 to improve health savings accounts, and for other purposes,” which passed the House Ways and Means Committee and will be sent to the House floor. Section 5 of H.R. 5858 will remove the rule that prohibits veterans from continuing to save money in their health savings accounts once they receive care through the VA.
Congressman Boustany in a statement said that Veterans with service connected disabilities should be free to save for their families’ health needs. [Source: IRS Pub 969 & TREA News for the Enlisted 8 Jun 2012 ++]

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