Health Savings Accounts

Transcription

1 Entire lesson Health Savings Accounts (optional certification) Pub 4012 Tab E Pubs 969 and 4942 Form 8889 Instructions

2 IRS Certification VITA/TCE Counselors must be certified by passing the HSA test Refer to Form 4942 for details State may or may not conform If not conforming, may be out of scope 2

3 How do you Know? W-2 Intake form 3

4 Lesson Objectives What is an HSA Who can contribute to an HSA and what s the limit What to do with HSA distributions Entering in TaxSlayer 4

5 HSA Benefits Contribution is potential adjustment to income Employer contribution excluded from Form W-2 wages Contributions accumulate tax free and without limit until taxpayer uses them 5

6 HSA Benefits (cont) Distributions are tax-free if have unreimbursed qualified medical expenses HSA remains with the taxpayer (does not expire) No deadline to reimburse qualifying expenses from the HSA 6

7 What is an HSA? Tax-exempt trust or custodial account with a qualified HSA trustee Taxpayer must be eligible Limited tax deductible contributions Nontaxable distributions if used for qualified medical expenses 7

8 Who is Eligible for an HSA? Must have high-deductible health plan (insurers identify qualified plans) for self or for family Not covered by other general health insurance see next slide Not a dependent of another taxpayer 8

9 Other Permissible Health Coverage Spouse can have other coverage so long as spouse is not the HSA owner If Flexible Spending Account see Pub 969 Can have limited benefits insurance: workers comp, tort, specific illness, fixed amount for hospitalization, accident, disability, dental, vision, long-term care 9

10 Who Sets up an HSA An eligible individual An eligible individual through an employer plan 10

11 The HSA Trust Must be with an authorized HSA trustee No provision for jointly owned HSA Surviving spouse can take deceased spouse s HSA as their own (in scope) HSA terminates on death if beneficiary is not the surviving spouse (out of scope) See Pub 969 for more info 11

12 Employer HSA Many employers set up the HSA for the employee with an authorized trustee HSA must be set up before year end Taxpayer must have HDHP coverage during the year Employer contribution is not taxable wages to employee 12

13 Contribution and Deduction Qualified HSA contributions are deductible No income requirement (like there is, for example, with an IRA) 13

14 Limits on Contributions Depends on the type of HDHP coverage (self or family) Date the taxpayer became an eligible individual Date the taxpayer ceased being an eligible individual The taxpayer s age if 55 14

15 Contributions to HSA A person other than the employer may contribute on behalf of an eligible individual - treated as a gift and deductible by the taxpayer Contributions must be made in cash, that is, no stock or property 15

16 Contribution Limits Overall contribution 2017 limit to HSA $3,400 for self-only HDHP $6,750 for family coverage HDHP Plus $1,000 if age 55 or older Reduced by employer contributions 16

17 Deduction Example 1 Carla is an eligible individual Had self-only HDHP coverage for the whole year Had an HSA for the whole year Age 38 She can contribute and deduct up to $3,400 17

18 Deduction Example 2 (cont. Ex 1) Carla s employer contributes $900 to Carla s HSA Reported on W-2 with code W but not taxable wages She can contribute and deduct up to $2,500 (max. $3,400 less $900) 18

19 Partial Year HSA Eligibility Monthly determination based on first day of each month Change in coverage, e.g. part of year was not HDHP 19

20 Deduction Example 3 Maria, age 48: Eligible individual with self-only HDHP coverage from January through September Not an eligible individual for October, November, and December Use the limitation chart and worksheet in Form 8889 Instructions to calculate her maximum contribution 20

21 Deduction Example 3 (cont.) Maria will enter $3,400 for Jan Sept; -0- for Oct Dec Deduction is limited to $2,550 January 3,400 February 3,400 March 3,400 April 3,400 May 3,400 June 3,400 July 3,400 August 3,400 September 3,400 October 0 November 0 December 0 Total for all months 30,600 Limitation. Divide the total by 12 2,550 21

22 Contribution Last Month Rule (Generally used for 1 st year) Eligible individual can make a full year contribution if: Eligible individual on the first day of last month of the taxable year December 1 for most people AND, remain an eligible individual during the testing period of 12 months after the first month From December 1 of the current year through December 31 of the following year 22

23 Last Month Rule - Example 4 On December 1, 2017: Chris, age 53, is eligible individual for HSA Started family HDHP coverage Expects to meet the testing period requirement by remaining eligible through December 31 of the following tax year Under the last-month rule, he can contribute up to the maximum family contribution limit for 2017 ($6,750) 23

24 What if testing period not met? Example 5 (cont. of Ex. 4) Assume Chris is not an eligible individual starting June 2018 He must recompute his 2017 allowable contribution and include the excess in his 2018 income (with the 10% penalty) He s entitled to 1/12 of $6,750 or $ $6, is income in return is out of scope 24

25 Rules for Married Couple Both spouses are eligible for a selfonly HSA Say each has self-only coverage Each can contribute $3,400* (< age 55) Total contribution / deduction = $6,800 * Each +$1,000 if age 55 for max $8,800 25

26 Rules for Married Couple If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage A single family contribution limit applies Split evenly unless agree on a different split Max contribution / deduction = $6,750* * Each + $1,000 if age 55, max = $8,750 26

27 Deduction Married Couple HSA - Example 6 Mr. and Mrs. Auburn are eligible individuals Mr. Auburn is 58 years old, Mrs. Auburn is 53 Both have HDHP family coverage and an HSA They may split the family ($6,750) contribution limit equally or may agree on a different division Mr. Auburn can contribute an additional $1,000 to his HSA because he is age 55 or over 27

28 Excess Contribution by Taxpayer Can be withdrawn by due date (including extension) Do not claim a deduction for excess Withdraw and include on return the earnings (e.g. interest) on the excess (report earnings in other income) 28

29 Excess Contribution by Employer Can be withdrawn by due date (including extension) Do not claim an exclusion for excess Withdraw and include on return the earnings (e.g. interest) on the excess (report earnings in other income) 29

30 Excess Contributions Attract additional tax of 6% until cured by withdrawal (previous slides) or used as qualified contribution in later year If additional tax applies, out of scope (Form 5329, part VII) 30

31 HSA Timeframe Taxpayers and employers can make contributions to the taxpayer s HSA until the filing deadline without regard to extension (April) Trustees generally require HSA to be set up before year end* *There is no deadline in the law 31

32 Distributions Distributions not taxed if used to pay or reimburse qualified medical expenses Expense must be incurred after HSA set up Even if the last month rule is used No time limit to take distribution Should not deduct medical expense on Sch A if will be reimbursed by HSA Can let funds stay in account for years! 32

33 Qualified Medical Expenses for HSA Distribution Pub 4012 F-5 Pub 502 Generally, unreimbursed expenses that would qualify for the medical expense deduction most often seen: Doctors, dentists, and hospitals Medicine or drug only : Requires a prescription Available without a prescription (over-thecounter) and the taxpayer gets a prescription for it Insulin 33

34 Medical Insurance Expense for HSA Distribution Some insurance premiums* are qualified medical expenses Long-term care coverage for self only Continuation coverage, e.g. COBRA Coverage while receiving unemployment Medicare or other coverage if over 65, but not supplemental coverage, e.g. Medigap * Special rules see F8889 instructions 34

35 Whose medical expenses qualify? Taxpayer and spouse All dependents claimed on the tax return Other people who could have been claimed as a dependent on the taxpayer s return except that: The person filed a joint return The person had gross income of the exemption amount or more, or The taxpayer or spouse (if filing jointly) could be claimed as a dependent on someone else s tax return 35

36 Mistaken Distributions The taxpayer may repay the mistaken distribution no later than April 15 following the first year the account beneficiary knew or should have known the distribution was a mistake See the instructions for Form 1099-SA for further information 36

37 Too Much Distribution? Include as taxable income Using Form 8889; will show on Line 21 Other Income Subject to 20% addition to tax, unless Death Disability After age 65 Out of scope 37

38 Qualified HSA Funding Distribution From some IRAs Special rules apply see Pub 969 Out of scope 38

39 HSA Rollovers or Transfers Rules similar to IRA rollovers and transfers apply Not taxable if done right See Pub

40 HSA Recordkeeping Trustee will likely help Taxpayers always have ultimate responsibility Should keep records to show the unreimbursed qualified medical expense to offset each distribution 40

41 Contributions Form W-2, Box 12, Code W indicates employer paid amount into taxpayer s HSA TaxSlayer carries amount to Form 8889 Otherwise, use intake form and interview for taxpayer contributions In TaxSlayer must complete Form

42 Form 1099-SA for Distributions 42

43 Form 5498-SA (received ~ May) 43

44 Form(s) 8889 Taxpayer and spouse: File separate Form 8889 for each HSA if both have HSA Follow specific instructions in Form 8889 Instructions 44

45 TaxSlayer Form 8889 Input Indicate owner Indicate type of plan 45

46 TaxSlayer Form 8889 Input Top of input page Follow Pub 4012, Tab E Check removes amounts on Form 8889 lines 3 & 4 Pub 4012 E-3 for contributions Out of Scope 46

47 TaxSlayer Form 8889 Input Middle of input page Pub 4012 E-4 for distributions Out of Scope 47

48 TaxSlayer Form 8889 Input Bottom of input page Out of Scope Directly assigns line 6 between TP & Spouse Amount not in Line 2 48

49 Out-Of-Scope HSA Situations (page 1) Excess contributions to an HSA that are not withdrawn in a timely fashion Qualified HSA funding distributions from an IRA Death of an HSA holder (when spouse is not the designated beneficiary) 49

50 Out-Of-Scope HSA Situations (page 2) Additional Tax for Failure to Maintain HDHP Coverage* Deemed distributions from an HSA due to prohibited transactions, such as using an HSA as a security for a loan * Last month rule and qualified funding distributions 50

51 Out-Of-Scope HSA Situations (page 3) Archer Medical Saving Accounts (MSA) Medicare Advantage MSA Health Reimbursement Arrangement Form 8889, Part III 51

52 Quality Review Confirm with taxpayer they had HDHP Confirm contributions made or will be made by due date of return Confirm distributions offset by qualified medical expenses and those expenses are not being (and have not ever been) deducted on Sch A Verify Form 8889 and Form 1040 results 52

53 Questions and Comments? Questions? Comments 53 NTTC Training TY2017

54 References Intake and Interview Sheet Publication 4012, Tab E, HSA Form 8889 and Instructions Form 1099-SA and Instructions Form W-2 and Instructions Publication 969 Publication 502 Form 5498-SA and Instructions 54