Tax and Financial Articles

What are Health Savings Accounts (HSA’s)?

HEALTH SAVINGS ACCOUNTS
By Glenn G Schanel, CPA and Associates, PA

What Are They?

A health savings account (HSA) is a means of saving for medical expenses on a taxfavored basis. It is not health insurance, but rather is a custodial account that is set up with a financial institution and created exclusively for the benefit of the account holder to
save for medical expenses.

How Are Contributions Taxes?

Contributions to an HSA are deductible for federal income tax purposes. The maximum annual contribution to an HSA for 2005 is the lesser of the annual deductible under a high deductible health insurance plan or $2,650 for individual coverage or $5,250 for family coverage.

Who Is Eligible For An HSA?

Any individual under age 65 who is covered by a “high deductible” health plan and cannot be claimed as a dependent on someone else’s tax return. A high deductible health plan in 2005 has an annual deductible of at least $1,000 for individual coverage, or
$2,000 for family coverage.

How Are Distributions Taxed?

Distributions from an HSA to pay the medical expenses of the individual and family are excludible from income. Distributions not used to pay medical expenses are subject to tax and penalties.