The Health Savings Account (HSA) is a versatile savings account designed to assist consumers who have a high-deductible health care plan and to secure dollars for use in paying qualified medical expenses. The HSA focuses on both near and long term accumulation of dollars to pay for immediate expenses, but future expenses later in life. HSA owners can take advantage of the Triple Tax Benefit of the HSA.

 

Triple Tax Benefit

By opening an HSA and establishing Day 11, it allows the HSA owner to benefit from

  • Tax deferred contributions made directly and/or through payroll deduction, reducing overall taxable income for the year the contribution is made.
  • Earnings on the contributions grow tax-deferred.
  • Distributions on qualified medical expenses incurred after Day 1 shift both contributions and earnings to a tax-exempt basis.

The key benefit of the HSA is that unlike a flexible savings account (FSA) offered through many employer benefit plans, unused contributions can be carried over year after year and do not face the “use-it-or lose-it” rule.

 

Multiple Contribution Options

Employer: An employer has the option to make a contribution on behalf of their employees. Employer contributions can provide a jump start for offsetting annual deductibles and building success in using the HSA.

Employee Payroll Contribution: Employers may provide the ability for employees to defer payroll dollars to an HSA. These contributions are tax-deferred for the employee and assist in developing a consistent accumulation of HSA dollars for future use against health care expenses.

Direct Contribution: HSA owners also have the ability to make HSA contributions directly to their HSA outside of payroll contributions. These contributions are tax deductible and provide a key flexible method for setting additional dollars aside to cover medical expenses at any point in the future.

The HSA can benefit from any combination of these contribution types in a given tax year as long as the aggregate total from all three types does not exceed the Self-Only or Family contribution limits based on the type of high deductible health plan (HDHP) the HSA owner is covered by.

 

Using Your HSA Dollars

Accumulated HSA dollars can be used on a tax-exempt basis to cover any qualified medical expense for the HSA owner, their spouses and dependents. Payments for qualified medical expenses can also cover those same individuals even if they are not covered by the HDHP plan of the HSA owner.

 

After Age 65

After age 65, the list of qualified medical expenses  increases to include such items as long-term care expenses, payment of Medicare premiums and others. In addition, HSA owners can also take a distribution for non-medical expenses. These expenses result in the amount withdrawn to be included in taxable income (similar to a Traditional IRA), but do not face an IRS penalty.2

 

Expense Reimbursement for Out-Of-Pocket Payments after Day 1

One of the key benefits of the HSA is the ability to reimburse yourself for the expenses from the HSA at any time in future and still qualify for tax-exempt withdrawals. Once the HSA is established, an HSA owner may elect to pay qualified medical expenses directly (out-of-pocket) in order to save HSA dollars for larger future needs. These reimbursements can be for any expenses incurred after Day 1 and paid out-of-pocket and can accumulate over time. Make sure to save your receipts as evidence of direct payment.

 

Learn More About HSAs

The HSA is a key tool to help cover medical expenses (including vision and dental) for you and your family. Fill out the form below for more information or speak to a Treasury Management associate today.

Lisa Wolff
Health Savings Account Program Marketing & Design Specialist
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Lisa Wolff is a Certified Health Savings Professional with NBH Bank a subsidiary of National Bank Holdings Corporation (NYSE: NBHC). NBH Bank operates a network of over 100 banking centers in Colorado (Community Banks of Colorado); greater Kansas City (Bank Midwest); and New Mexico, Texas and Utah (Hillcrest Bank). Prior to joining the banking industry four years ago, Lisa worked as the Director of Sales and Marketing for CBIZ and The Hobbs Group, national employee benefit consulting firms. Today, Lisa works with small to mid-size employer group clients to design and implement Health Savings Account (HSA) programs to maximize employee retention through education and communication plans, minimize health care costs and reduce tax burdens.

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1Day 1 – Day 1 is defined as the first day when the first HSA is established.  Medical expenses may only be qualified if they occur after Day 1 and meet the IRS definition of a qualified medical expense (See IRS Publication 502). 2HSA distributions taken before age 65 and used for non-qualified medical expenses are included as ordinary income and subject to a 20% IRS penalty for the amount of the distribution.