HSA Provider Q&A (2024)

FAQs

Who can answer HSA questions? ›

Your client should work with a competent tax advisor to answer any HSA-related tax questions. She can also refer to IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.

You can't contribute to an HSA if you have Medicare coverage, or a plan that pays its share of a covered service without you having to pay deductibles or copayments first (called “first dollar coverage”).

Money in the HSA may be used to pay or reimburse for medical, dental, optical, and hearing aids. When withdrawn for these expenses there are no taxes due.

The main downside of an HSA is that you must have a high-deductible health insurance plan to get one.

An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally cannot make contributions to an HSA.

HSAs might not make sense if you have some type of chronic medical condition. In that case, you're probably better served by traditional health plans. HSAs might also not be a good idea if you know you will be needing expensive medical care in the near future.

What is the purpose of the six-month lookback period? The Department of Health and Human Services backdates Medicare coverage retroactively for six months to ensure that people coming off of employer health coverage would not inadvertently find themselves uninsured while transitioning to Medicare.

If you work beyond age 65 and defer Medicare, however, you will need to stop contributing to your HSA six months prior to receiving Social Security. Once you begin drawing Social Security after your full retirement age, you are required to have Medicare coverage and can no longer contribute to an HSA.

Instead of using your HSA to pay for a medical expense right away, you pay for it out-of-pocket and keep the receipt (that's where the shoebox comes in). Leave your HSA undisturbed and archive your receipts somewhere safe, where you know you'll still find them years down the road.

What if I accidentally used my HSA card for groceries? ›

If you discover you accidentally paid for something other than a qualified medical expense from your HSA, you may repay the mistaken distribution prior to filing your federal taxes for the tax year of the mistake.

Verification of expenses is not required for HSAs. However, total withdrawals from your HSA are reported to the IRS on Form 1099-SA. You are responsible for reporting qualified and non-qualified withdrawals when completing your taxes.

HSAs offer triple tax benefits (deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses). PPOs do not provide the same tax advantages, but they offer more predictable costs and lower upfront expenses.

HSAs also have significant tax advantages for the employers who offer them. Employers don't have to pay federal income tax, social security, or medicare taxes (commonly known as FICA taxes) on any pre-tax contributions (from the employer or the employee).

An HSA has a unique triple tax benefit: Your contributions reduce your taxable income. Any investment growth within the account is tax-free. Qualified withdrawals (that is, ones used for medical expenses) are tax-free.

The ability for advisors to manage the investment assets of the account holders. If you typically manage your clients' other investments, it could be more efficient for you (and beneficial for your clients) if you also managed the investments in their HSA.

With HSAs, the individual owns the account — not the employer, even if they contribute to it.

The only time you can use your HSA to pay for the healthcare costs of a friend is if you have named that person as a dependent on your most recent tax return (provided that they qualify under the non-relative qualifications — detailed below).

An HSA custodian refers to any bank, credit union, insurance company, brokerage, or other approved organizations that offer HSAs. They may also be called HSA administrators.