An HSA is a unique, tax-advantaged savings plan that can be used to pay for  qualified healthcare expenses. Available to customers with high-deductable healthcare plans (HDHP), HSAs provide opportunity for both tax savings and long term cash accumulation. Unlike Flexible Spending Accounts (FSAs), funds contributed to an HSA can accumulate indefinitely.

HSAs are individual accounts only.  Joint HSAs are not allowed. However, customers can have a family HSA if they have a family covered HDHP.  Family HSA’s are opened in the qualifying individual’s name, but the account is coded as “Family” when the family has insurance coverage. HSA Family coverage limits are higher than individual limits.

The account holder must be able to demonstrate to the IRS that the funds were spent for qualified healthcare purposes.

The IRS has strict guidelines for who is eligible to open and contribute to a Health Savings Account. Under the law, an eligible individual:

• Must be 18 years of age or older
• Must be covered under a qualified high-deductible health plan (HDHP)
• May not be covered under any health plan that is not a qualified HDHP*
• Must not be enrolled in Medicare (the healthcare component of the Social  Security program) 
• May not be claimed as a dependent on another individual’s tax return

If you do not live in the United States, you can still open an HSA under  certain circumstances: 

• You are a US citizen and are paid in US dollars
• Or, You are employed in the US and are paid in US dollars

You will need a US-based Tax Identification number to open an HSA – this is generally necessary to work in the US as well.

Note: If you are eligible for national health coverage in your country (e.g., Canada), you are not eligible to contribute to an HSA.

2020 HSA Contributions

The employee, the employer, or both may contribute (family members or any other person may also contribute).

Individual

$3,550 

Family

$1,400 

$6,900

$7,100 

$2,800 

$13,800  

Distributions used exclusively to pay for qualified medical expenses of the  employee and his or her spouse and dependents are tax-free. Any distribution amount not used exclusively to pay for qualified medical expenses is included in the employee’s gross income and may be subject to an additional 20 percent tax. Generally, qualified medical expenses are those expenses paid for “medical care” as defined in Internal Revenue Code Section 213(d). Employees who cover dependents to age 26 under an HDHP may not use HSA funds for reimbursement on a tax-free basis for an 

adult child’s medical expenses, unless the adult child qualifies as a tax  dependent of the employee; the same rule applies for Domestic Partners – they are ineligible to use any employee’s HSA funds.

Unused HSA balances can be carried over to the next year, and since the  employee is the owner of the account, HSAs are portable. Account owners may only contribute when enrolled in a HDHP, but may receive distributions 

from an HSA at any time for qualified medical expenses. Accumulated HSA  balances have features similar to an IRA. Talk to your investment advisor for more information.

Other recommended resources for HSA compliance include the following:

• IRS Publication 969, Health Savings Accounts and Other Tax-favored Health Plans
• IRS Rev. Proc. 2019-25, which includes the inflation-adjusted HSA limits for 2020
  

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