A type of savings account that allows you to set aside money on a pre-tax basis to pay for qualified medical expenses if you have a “high deductible” health insurance plan. Combining a High Deductible Health Plan with an HSA allows people to pay for certain medical costs–such as deductibles and copayments–with untaxed dollars. High-deductible plans usually have lower monthly premiums than plans with lower deductibles.
If you do not use your HSA Funds, they’ll roll over from year to year, and they enable you to take the funds with you if you have a change in employment or employment status. HSA may also earn interest–you can start a Health Savings Account through your personal bank (or other financial institution).
Benefits and Required Qualifications:
- You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you don’t itemize your deductions on Schedule A (Form 1040).
- Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
- The contributions remain in your account until you use them.
- The interest or other earnings on the assets in the account are tax free.
- Distributions may be tax free if you pay qualified medical expenses. See Qualified medical expenses, later.
- An HSA is “portable.” It stays with you if you change employers or leave the work force.
Qualifying for an HSA
- You are covered under a high deductible health plan (HDHP), described later, on the first day of the month.
- You have no other health coverage except what is permitted under Other health coverage, later.
- You aren’t enrolled in Medicare.
- You can’t be claimed as a dependent on someone else’s 2016 tax return.
[Source: Healthcare.gov Glossary “Health Savings Account”: https://www.healthcare.gov/glossary/health-savings-account-HSA/ ]
[Source: IRS-Health Savings Accounts: https://www.irs.gov/publications/p969/ar02.html ]