Understanding Health Savings Accounts

More people are using health savings accounts (HSAs) to help pay unreimbursed medical expenses and to set money aside for future health care expenses. HSAs are available only to individuals who have a qualifying high-deductible health

plan (HDHP). Employers may offer an HSA option along with an HDHP, or an eligible individual with an HDHP may open an HSA at a financial institution or other provider. The following questions and answers provide more details about HSA
arrangements.

What is an HDHP?

An HDHP is a health plan that, for 2014, has an annual deductible of at least $1,250 for individual coverage ($1,300 in 2015) or $2,500 for family coverage ($2,600 in 2015). The sum of the annual deductible and other out-of-pocket
expenses for covered expenses can\’t exceed $6,350 for individual coverage ($6,450 in 2015) and $12,700 for family coverage ($12,900 in 2015). Out-ofpocket expenses include copayments and other amounts, but they do not include premiums.

Is additional coverage allowed?

To qualify for an HSA, an individual (and the individual\’s spouse, with family coverage) generally may not have health coverage that is not an HDHP. However, there are exceptions. Forex< mplc, additional coverage for accidents,
disability, dental care, vision care, and long-term care is allowed.

Are HSA contributions tax deductible?

HSA contributions are tax deductible, within certain limits. Similarly, any employer contributions to an employee\’s HSA are not included in the employee\’s income.

For 2014, the maximum deductible HSA contribution is $3,300 for a person with self-only coverage under an HDHP and $6,550 for a person with family coverage. For 2015, these amounts increase to $3,350 and $6,650, respectively. Individuals
age 55 and older may make additional \”catch-up\” contributions to their HSA of up to $1,000 per year. HSA contributions are taken as an \”above-the-line\” deduction, meaning that they reduce adjusted gross income (AGI) and may therefore
benefit the taxpayer elsewhere on the income-tax return. A taxpayer does not have to itemize to claim the deduction for HSA contributions.

How are account earnings taxed?

Money deposited in an HSA may earn interest or other investment income. These earnings are not taxed while they remain in the account.

Are HSA withdrawals taxable?

No tax is due on funds withdrawn from an HSA as long as the money is used to pay qualified medical expenses for the account holder or his or her spouse and dependents. Withdrawals not used for qualified medical expenses are taxable, and
an additional 20% penalty generally would apply to withdrawals before age 65.

There is no requirement to take money out of an HSA each year, so funds can be left to accumulate if they are not needed for medical expenses.

What are qualified medical expenses?

Generally, medical expenses that are allowed for the itemized medical expense deduction-are quallllcd mt:c\’kal expenses for HSA purposes. However, qualified medical expenses do not include most health insurance premiums. Exceptions
include premiums for qualified long-term care insurance and – for individuals over age 65 – premiums for Medicare Part A and B. Premiums for supplemental Medicare policies (\”Medigap\”) are not qualified medical expenses . •

SEPTEMBER

15 Individuals: Third installment of 2014 estimated tax due; fi Ie Form 1040-ES.

15 Corporations: Last day for filing 2013 income-tax return (Form 1120, 1120S) by a calendar-year corporation that obtained an automatic six-month filing extension.

15 Corporations: Due date for depositing the third installment of estimated income tax for 2014 for calendar-year corporations.

15 Partnerships: Last day for filing 2013 return (Form 1065) by a calendar-year partnership that obtained a five-month filing extension.

OCTOBER

15 Individuals: File 2013 federal incometax return and pay any tax due if you obtained a six-month filing extension.

31 Employers: File Form 941, Employer\’s Quarterly Federa I Tax Return, for the third quarter of 2014.

10 Employers: Deferred due date for Form 941, if timely deposits were made