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Benefits of an HSA

You are able to claim a tax deduction made by you or someone other than your employer even if you do not itemize your tax return. Contributions made by your employer may be excluded from your annual gross income. 3Rivers HSAs offer a dividend and the dividends earned is tax-free. 

Distributions may be tax-free as long as the funds are used to pay a qualified medical expense or until you reach age 65.

Contributions to your HSA are yours to keep (even if you change jobs). They do not follow the “use it or lose it” policy of some other tax-favored accounts. Any unused HSA funds remain in the account from year to year. 

3Rivers allows you to open your HSA in a branch or online. We pair our HSA checking accounts with a free debit card, free online account access and free bill pay (paper checks can be provided at cost upon request).  

Qualifying for an HSA

To be an eligible individual and qualify for an HSA, you must meet the following requirements: 

  • You’re covered under a high-deductible health plan on the first day of the month
  • You have no other health coverage except what is permitted under “Other Health Coverage” deemed by the IRS Publication 969.  
  • You are not enrolled in Medicare.
  • You cannot be claimed as a dependent on someone else’s tax return. 

High Deductible Health Plans (HDHP)

An HDHP must meet certain criteria in order to qualify for an HSA, as deemed by the IRS includes:  

  • A higher deductible than typical health insurance plans
  • A maximum limit on the annual deductible and other out-of-pocket expenses *

Individual coverage means that only one eligible individual is covered under the HDHP.

Family coverage means that one eligible individual and at least one other individual (eligible or not) is covered under the HDHP. Some family plans may not qualify based on how the deductible is used.

The criteria for these High Deductible Health Plan is likely change from year to year.  

HSA High Deductible Qualification

Last updated: 8/1/2020
HDHP Coverage Min. Annual Deductible Max. Annual Deductible and Other Out-of-Pocket Expenses*
2019 High Deductible Health Plan Qualification
Individual Insurance $1,350 $6,750
Family Insurance $2,700 $13,500
2020 High Deductible Health Plan Qualification
Individual Insurance $1,400 $6,900
Family Insurance $2,800 $13,800

*This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies.

Other Coverage

If you have another HDHP coverage, you generally can’t carry any other health coverage. However, you can have additional insurance that provides certain benefits, which would allow you to be eligible.

If you’re covered under, an HDHP and a health FSA or HRA that pays or reimburses your qualified medical expenses you generally cannot contribute to an HSA you own. The exceptions to this are if you’re covered under a limited-purpose health FSA or HRA, a Suspended HRA, a Post-deductible health FSA or HRA or a Retirement HRA. 

If you’re still unsure if you qualify, your insurance professional can help you determine whether your plan is an HSA qualified plan. 

The information within this article was found on the IRS website, in Publication 969.

Contributions to your HSA

Each year the IRS sets a maximum amount allowable to contribute to your HSA. If you are eligible you, your employer or someone else may contribute to your HSA on your behalf. Contributions made by your employer aren’t included in your annual income.

The maximum contribution amount is dependent on the type of high deductible health plan (HDHP) coverage you have. These contributions maximums can be made up until April 15th the following year.

HSA Contributions

Last updated: 8/1/2020
Type of Coverage 2020 2019

Individual HDHP Coverage (Max. Annual Contribution)

$3,550 $3,500
Family HDHP Coverage (Max. Annual Contribution)

$7,100

$7,000

Eligible individuals over the age of 55 at the end of their tax year are allowed a catch-up contribution of $1000 more to their HSA. If you are married and both qualify for an HSA, be mindful that this catch-up contribution must be made to an HSA that you are the owner of. 

You also have to be aware of the months that you have the HDHP coverage. The IRS calls this the “last-month rule” and “testing period”. If you were eligible on the first day of the last month of your tax year, typically December 1st, you would qualify for the maximum HSA contribution amount for that entire year. However, you must remain an eligible individual throughout the remainder of that entire month, the testing period. 

Examples of these instances can be found on the IRS website in Publication 969

One-time contributions can be made from an individual’s IRA or Roth IRA without being subject to tax. The one-time contribution limit is the same as the maximum annual HSA contribution and both accounts must be in the same individual’s name. 

Distributions from an HSA

A distribution is money you get from your HSA using your 3Rivers debit card, bill payer service, or online/mobile access. HSA distributions are tax-free if they are used to pay for qualified medical expenses. Distributions for non-eligible expenses are subject to income tax and a penalty of 20% of the amount withdrawn. This penalty will be waived if you are over the age of 65 or in the case of a death or disability. 

Expenses incurred before you establish your HSA, generally are not qualified. Most insurance premiums are also not considered a qualified medical expense (some exceptions apply for specifics refer to the IRS website or a tax advisor). 

You typically can use the HSA funds on anyone that you can claim on your tax return. This can get tricky in certain situations, so it may be best to clarify using the IRS Publication 969 or seek tax advice. 

Even if you are no longer eligible to contribute to your HSA, you’re still able to use the funds for qualified medical expenses until the funds are gone. The funds in the HSA carry over from year to year. 

Did you know, borrowing from your HSA is a prohibited transaction? Allowing your HSA Checking to go into the negative or using it as a security loan can have some serious tax consequences. Luckily, 3Rivers has securities in place to help you avoid this mistake. However, there are instances where it can happen. 

The best record to keep for all of your HSA distributions would be copies of medical bills, receipts, or detailed statement from your medical expert.  

Treatment of HSA upon the owner’s death:

  • It is important to establish a beneficiary on these accounts. Since these are not owned by more than one individual, the transfer of ownership doesn’t exist. 
  • If an HSA owner passes away and the spouse is the designated beneficiary they can inherit the funds tax-free and continue to use the HSA funds for qualified medical expenses. 
  • If any non-spouse is designated the account stops being an HSA and the fair market value is taxable income under that beneficiary.
  • If there is no beneficiary designated, the HSA funds go to the estate of the owner. 
  • Any qualified medical expense for the decedent that are paid by the beneficiary (other than the estate) for the decedent can be excluded from the taxable amount. 
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