Health Savings Accounts

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 created a new, tax-advantaged way for certain people to save for health care expenses. You must be covered by a high-deductible health plan to open and contribute to a Health Savings Account (HSA). IRS and Treasury have provided guidance on how HSAs work.

Related Items:

• Notice 2004-2 (PDF 55K) — Questions & Answers on HSAs. (Updated 8/9/04 to include changes made by Notice 2004-50, as revised.)
• Notice 2004-50 (PDF 143K) — A set of 88 additional questions and answers on various HSA issues, including eligibility, contributions, distributions and plan administration. (Revised 8/9/04)
• Notice 2004-23 (PDF 91K) — Safe harbors for preventive care benefits
• Notice 2004-25 (PDF 52K) — Transition relief for medical expenses incurred in 2004 for those who establish an HSA by April 15, 2005.
• Notice 2004-43 (PDF 50K) — Transition relief for individuals in states where high deductible health plans are not available because state laws bar or limit a deductible for certain benefits.
• Revenue Ruling 2004-38 (PDF 55K) — HSA rules for persons covered by both a high deductible health plan and a prescription drug plan.
• Revenue Ruling 2004-45 (PDF  85K) — Clarifies how health Flexible Spending Arrangements (FSAs) and Health Reimbursement Arrangements (HRAs) interact with Health Savings Accounts (HSAs). The guidance provides a number of ways that individuals may have access to benefits from FSAs and HRAs and remain eligible to contribute to an HSA. Issued May 11, 2004.
• Revenue Procedure 2004-22 (PDF 38K) — Transition relief before 2006 for HSA-eligibles covered by both a high deductible health plan and a prescription drug plan.
• Treasury Release JS-1061 — an overview of HSAs, with links to an HSA Fact Sheet and a release from the Office of Personnel Management about these accounts and the Federal Employees Health Benefits Program.
• Treasury Release JS-1278 — a summary of additional guidance on HSAs, issued March 30, 2004

2008 Changes

Eligibility. For 2008, a qualifying high deductible health plan (HDHP) must have a deductible of at least $1,100 for self-only coverage or $2,200 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $5,600 for self-only coverage and $11,200 for family coverage.

Employer contributions. Up to specified dollar limits, cash contributions to the health savings account (HSA) of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. For 2008, you can contribute up to the following amounts to a qualified individual's HSA.

• $2,900 for self-only coverage or $5,800 for family coverage.
• $3,800 for self-only coverage or $6,700 for family coverage for a qualified individual who is age 55 or older at any time during the year. The $6,700 limit is increased by $900 for two married individuals who are age 55 or older at any time during the year provided each spouse has a separate HSA.

Employers are allowed to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee.

For more information, see Health Savings Accounts on page 12 of the Publication 15-B, Employer's Tax Guide to Fringe Benefits.

2009 Changes

Eligibility. For 2009, a qualifying high deductible health plan (HDHP) must have a deductible of at least $1,150 for self-only coverage or $2,300 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $5,800 for self-only coverage and $11,600 for family coverage.

Employer contributions. Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. For 2009, you can contribute up to the following amounts to a qualified individual's HSA.

• $3,000 for self-only coverage or $5,950 for family coverage.
• $4,000 for self-only coverage or $6,950 for family coverage for a qualified individual who is age 55 or older at any time during the year. The $6,950 limit is increased by $1,000 for two married individuals who are age 55 or older at any time during the year provided and each spouse has a separate HSA.

Employers are allowed to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee.

For more information, see Health Savings Accounts on page 13 of the 2009 Publication 15-B.