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Home > Business > Employee Services > Health Savings Account

Health Savings Account

A tax advantage to offset health care expenses

Health Savings Accounts, or HSAs, were created by Congress to combat rising medical costs by providing an incentive for more consumers to pay "first-dollar" medical expenses. An HSA is an IRA-like account that is designed exclusively for covering medical expenses incurred by the HSA account beneficiary (the person who establishes the account) and his or her dependents.

    • HSAs are available to individuals covered by a high deductible health plan (HDHP) regardless of whether the person is self-employed or employed by a small employer, and regardless of whether the employer maintains the health plan. You are an eligible individual for coverage for any month if you are:

      • covered under an HDHP on the first day of that month

      • not covered by any other health plan that is not an HDHP (with limited exceptions)

      • not enrolled for benefits under Medicare (generally not yet 65)

      • not able to be claimed as a dependent on another person's tax return

    • An employer may offer HSAs through a cafeteria plan.

    • Employer contributions to an HSA reduce what an individual can contribute, but they do not eliminate an individual's ability to contribute.

  • Sole proprietors and others who are self-employed can have an HSA and are, in fact, often ideal candidates for an HSA. In such situations, the business owner is both employer and employee. Some of the advantages an HSA offers the self-employed include:

    • high-deductible health insurance plans generally have modest premium costs, and may be an effective cost-containment mechanism for the employer

    • the employer is protected against potentially catastrophic healthcare expenses

    • the HSA may serve the dual purpose of providing for both medical and retirement expenses

  • An HDHP is an insurance policy that meets certain dollar limits. HDHP and contribution limitations are revised each year to reflect cost-of-living increases. The following table reflects limits set for 2014:

    Annual deductible:
    Self only: $1,250 or more
    Family: $2,500 or more

    Annual deductible plus out-of-pocket expenses cannot exceed:
    Self only: $6,350 or more
    Family: $12,700 or more
     

  • The total amount you or your employer may contribute to an HSA for any taxable year is dependent upon whether you have individual or family coverage under a high deductible health plan:

    Annual contribution limit:
    Self only: $3,300
    Family: $6,550

    In addition to the standard HSA contribution limits shown in the previous table, if you are age 55 before the close of a taxable year, you may also contribute an additional amount known as a "catch-up" contribution. The catch-up contribution limit for 2014 and beyond is $1,000.

  • HSAs can provide significant tax benefits to eligible individuals. Not only can HSAs provide tax benefits related to paying qualified medical expenses, they may also provide benefits similar to many tax-favored retirement plans. The benefits include:

    • HSA contributions are tax deductible

    • HSA contributions made by an employer are excluded from income

    • HSA earnings are tax deferred

    • If used for qualified medical expenses, HSA assets are never taxed

    • Unused HSA assets may be used for retirement; however, they will be subject to a 20 percent penalty until the HSA account beneficiary turns age 65. If not used for medical expenses, they will be subject to income taxes.

    • Upon death, HSA assets become the property of a named death beneficiary, or of the HSA account beneficiary's estate. A spouse may treat the assets as his or her own HSA, while non-spouse death beneficiaries must treat such assets as ordinary taxable income.

  • In order for HSA assets to retain their tax-free status, they may only be withdrawn and used for certain expenses, including:

    • Actual medical expenses, including doctor visits, prescriptions, transportation to get to medical care, and certain dental and vision care

    • Qualified long-term care insurance

    • Healthcare coverage when unemployed

    • Certain continuation of benefit healthcare coverage

    • Certain health insurance after age 65

Contact Us Today!

If you have any questions about Health Savings Accounts, please contact us toll-free at 1-800-492-3221, visit us at any CNB Bank branch location, or send an email to customerservicecenter@bankcnb.com. CNB appreciates the opportunity to be your financial partner.

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