Did you enroll in an HDHP mid-year?

 If an individual becomes eligible for an HSA anytime on or before December 1^st of any year (last-month rule), they may contribute the full contribution maximum for that year as long as they meet the “testing period”.  The testing period states they must remain an eligible individual through December 31 of the following calendar year.    If the individual does not remain covered by HDHP during this “testing period,” the extra amount (i.e., the difference between the amount actually contributed and the pro-rated amount that would have been allowed) must be included in the individual’s income and will be subject to a 10 percent additional tax.

 Did you change coverage from single to family during the year?

 Individuals with changes in coverage type during the year (i.e. single to family coverage) may also take advantage of the last month rule.  For example, if an individual had single coverage during the year but switched to family coverage no later than December 1st, they would be eligible to contribute the family maximum for the tax year.  These individuals are still required to meet the testing period and must remain covered in a HDHP through December 31^st of the following year.

 However, if an individual is unsure or knows that they will not keep the HDHP coverage through December 31 of the following year, pro-rating the contributions based on the actual HSA eligibility remains a choice and may be the better option for the individual.

 For more information, see IRS Publication 969 (pages 5 & 6).

The 2012 tax year limits are:

Single Coverage:  $3,100

Family Coverage (2 or more people on your policy): $6,250

Catch up Contribution:  If you are age 55 or older at any time during the tax year, you may contribute an additional $1,000 to the numbers above.

The IRS  released their guidance on the recent changes to regulations regarding tax free HSA withdrawals. As of January 1, 2011, withdrawals (distributions)  from your HSA or Archer MSA to pay for medications are tax-free ONLY  if:

1. the medicine or drug requires a prescription,
2. it is an over-the-counter medicine or drug and the individual obtains a prescription, or
3. it is insulin.

If amounts are distributed from an HSA or Archer MSA for any medicine or drug which does not satisfy this requirement, the amounts will be considered “distributions for nonqualified medical expenses”, which must be included in your gross income and are subject to a 20% penalty. This change does not affect HSA or Archer MSA distributions made before January 1, 2011 for medicines or drugs , nor does it affect distributions made after December 31, 2010, for medicines or drugs purchased on or before  December 31, 2010.

• You must be covered by a qualified high deductible health plan on the first day of the month
• You cannot be covered by any other health plan that is not a qualified high deductible health plan, including spouse’s health insurance
• You cannot be covered by spouse’s Medical FSA
• You cannot be enrolled in Medicare Part A or Part B
• You cannot be covered by TriCare
• To make contributions you cannot have accessed your VA medical benefits in the past 90 days
• You may not be claimed as dependent on another person’s tax return

Please feel free to contact us if you have any questions about HSAs with Health Savings Administrators.

 Q-2. May an otherwise eligible individual who is eligible for Medicare, but not enrolled in Medicare Part A or Part B, contribute to an HSA?

 A-2. Yes. Section 223(b)(7) states that an individual ceases to be an eligible individual starting with the month he or she is entitled to benefits under Medicare. Under this provision, mere eligibility for Medicare does not make an individual ineligible to contribute to an HSA. Rather, the term “entitled to benefits under” Medicare means both eligibility and enrollment in Medicare.

Thus, an otherwise eligible individual under section 223(c)(1) who is not actually enrolled in Medicare Part A or Part B may contribute to an HSA until the month that individual is enrolled in Medicare.

Example (1). Y, age 66, is covered under her employer’s HDHP. Although Y is eligible for Medicare, Y is not ctually entitled to Medicare because she did not apply for benefits under Medicare (i.e., enroll in Medicare Part A or Part B). If Y is otherwise an eligible individual under section 223(c)(1), she may contribute to an HSA.  

Example (2). In August 2004, X attains age 65 and applies for and begins receiving Social Security benefits. X is automatically enrolled in Medicare. As of August 1, 2004, X is no longer an eligible individual and may not contribute to an HSA.  

Q-4. Is a government retiree who is enrolled in Medicare Part B (but not Part A) an eligible individual under section 223(c)(1)?

 A-4. No. Under section 223(b)(7), an individual who is enrolled in Medicare may not contribute to an HSA.

Two tax forms will be sent to you, and to the IRS. The first is Form 1099-SA. This form is sent no later than January 31. Form 1099-SA tells you what distributions have been made from your health savings account during the calendar year. The amount in Box 1 of your 1099-SA will be reported on Line 14a of Form 8889. (Form 8889 is required when filing your taxes if you have a health savings account).

The second form sent to you is Form 5498-SA. This form is sent out no later than May 15, but definitely after the tax filing deadline of April 15. Form 5498-SA cannot be sent any earlier because taxpayers have until April 15 to make contributions to the prior year’s HSA. This form included ALL contributions made between January 1 of the reportable tax year (e.g. 2012) and April 15 of the following tax year (e.g. 2013).

Here is what goes in each Box of the 5498-SA:

Box 1. Employee or Self-Employed Person’s Archer MSA Contributions Made in 2012 and 2013 for 2012
No HSA information is to be reported in box 1 Enter the employee’s or self-employed person’s regular contributions to the Archer MSA made in 2012 and through April 15, 2013, for 2012. Report gross contributions, including any excess contributions, even if the excess contributions were withdrawn.

Box 2. Total Contributions Made in 2012
Enter the total HSA or Archer MSA contributions made in 2012. Include any contribution made in 2012 for 20. Also include qualified HSA funding distributions (trustee-to-trustee transfers from an IRA to an HSA under section 408(d)(9)) received by you during 2012. You may, but you are not required to, report the total MA MSA contributions the Secretary of Health and Human Services or his or her representative made in 2012. Do not include amounts reported in box 4.

Box 3. Total HSA or Archer MSA Contributions Made in 2013 for 2012
Enter the total HSA or Archer MSA contributions made in 2013 for 2012.

Box 4. Rollover Contributions
Enter rollover contributions to the HSA or Archer MSA received by you during 2009. Include qualified HSA distributions (direct transfers of contributions form employers FSAs and HRAs to an HSA under section 106(e). These amount s are not to be included in box 2.

Box 5. Fair Market Value of HSA, Archer MSA, or MA MSA
Enter the FMV of the account on December 31, 2012.

Box 6. Checkbox
Check the box to indicate if this account is an HSA, Archer MSA, or MA MSA.

What tax forms do I need to complete?

All taxpayers who have a health savings account must complete Form 8889 if:

• they, or someone on their behalf, made contributions to their HSA.
• they received any HSA distributions in the  just-past calendar year.
• they failed to be an eligible individual during the testing period.
• they acquired an interest in an HSA because of the death of the account beneficiary.

If you find that you have made an excess contribution to your HSA and failed to remove it prior to filing your taxes, including extensions, you may also be required to complete Form 5329.

Where can I find Tax forms?

• Visit www.irs.gov/formspubs/

1. Fees for care. In this model the fees charged are directly related to medical care, as described by the IRS, and would generally be considered as eligible medical expenses under the HSA guidelines.
2. Annual Physical. Here a fee is charged for an annual physical, usually comprehensive in scope, that includes no additional non-medical services. The physical is considered to be medical care and would generally be considered as eligible medical expenses under the HSA guidelines.
3. Annual physical plus amenities. Here a fee is charged for an annual physical and some additional non-medical services (amenities). The physical is considered to be medical care and would generally be considered as eligible medical expenses under the HSA guidelines. The amenities (e.g. retainer fess or timely access to a physician) are not eligible medical expenses under the HSA Guidelines. If the Physician group provides itemized billing for the services included, the physical can be reimbursed from the HSA as a medical expense, but the “amenities” cannot. In the case where the physician group furnishes only a global bill with no itemization for specific services, it may be difficult to prove the expense was eligible.
4. Amenities Only. Here the fees collected by the physician groups are exclusively for amenities like retainer fees or guaranteed timely access. These are not medical expenses and as such are not generally reimbursable by the HSA.

The rationale is detailed below.

The final decision as to whether an expenditure is primarily for medical care, or is merely beneficial to general health, is a question of fact ( i.e. would be supported by evidence unique to the situation in question). If you have questions about your situation after reviewing this answer, you should consult your tax advisor or tax attorney.

Section 213(a) Of the IRS code allows a deduction for uncompensated expenses for medical care of an individual, the individual’s spouse or a dependent, to the extent the expenses exceed 7.5 percent of adjusted gross income. Section 213(d)(1) provides, in part, that medical care means amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. This is the basis for all HSA eligible medical expenses.

Under § 1.213-1(e)(1)(ii) of the Income Tax Regulations, the deduction for medical care expenses will be confined strictly to expenses incurred primarily for the prevention or alleviation of a physical or mental defect or illness. An expense that is merely beneficial to the general health of an individual is not an expense for medical care. Whether an expenditure is primarily for medical care or is merely beneficial to general health is a question of fact.

This is echoed in IRS Publication 502:

“Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. They also include dental expenses. Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation.”

Pub 969 (which speaks directly to additional HSA allowable expenses) again references 502 and makes no mention of physician concierge services:

“Qualified medical expenses. Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. These are explained in Publication 502, Medical and Dental Expenses. ” Publication 969 goes on to include over the counter medications and certain insurance premiums but is silent on the issue of concierge services, considering them to have been addressed in Publication 502.

The spouse is an “ineligible individual” in the eyes of the IRS. The IRS allows married couples to assign the tax deduction to each spouse in whatever proportions they deem appropriate. As long as the tax deductions are allocated to the eligible spouse (a paper assignment for those filing jointly) the fact that one one spouse is “ineligible’ has no impact on the HSA contribution limits in this case.    (IRS guidance 2004-50 Q&A 31, example 5 and Q&A 32)

Yes. IRS Notice  2008-59, Q&A 33 addresses the question of a dependent being claimed by a former spouse.   

Q-33. Do qualified medical expenses for HSA purposes include the § 213(d) medical expenses incurred by an account beneficiary’s child who is claimed as a dependent by the account beneficiary’s former spouse?

 A-33. Yes.