Best Practices Guide What is a Health Savings Account? A Health Savings Account (HSA) is a personal financial account, just like a checking account. But the money you put in your HSA can be tax free, and can be used as tax-free payment for medical, dental, vision and prescription health care expenses. This document can help you put your HSA to work. HSA Basics What Does WageWorks Do? WageWorks is a leading on-demand provider of Consumer-Directed Benefits in the United States. In addition to other CDBs, they offer an easy-to-use technology to help participants utilize their Health Savings Accounts (HSA). Today, employees pay unnecessary taxes because eligible individuals fail to open and fully utilize their HSAs. WageWorks solves these issues with innovative solutions such as: Easy reimbursements for eligible expenses not paid for with HSA money Online receipt storage Automated, online account opening process WageWorks and Your HSA For many people, using an HSA can seem confusing. WageWorks makes it easy to set up your HSA and start saving on health care costs. This document has a lot of information but there are always unique questions, so you shouldn t hesitate to contact us. You can email us at accountholder.flexreserve@ wageworks.com or call the FlexReserve HSA support team at 1-866-384-8549. Why Do HSAs Exist? To encourage consumers to take more financial responsibility for their health care costs, Congress created HSAs. For the vast majority of services, consumers can decide where their money is spent. This is made possible through a higher deductible than traditional plans. An out-of-pocket cap and taxadvantaged savings often result in lower health care costs for consumers. What Are the Advantages of Using an HSA? A Health Savings Account allows you to save money without paying taxes on the amount you save, the interest you earn on it or the amount you spend on qualified medical expenses. This can result in a large financial gain. Using pretax dollars to pay for expenses reduces your taxable income. At the same time, premiums are usually lower for High Deductible Health Plans than for traditional healthcare plans. Another consideration is that your employer may contribute to the Health Savings Account on your behalf. You do not pay any taxes on employer contributions to your account.
How Do I Become Eligible for an HSA? The important test is whether or not you can contribute to an HSA. To contribute to an HSA, you must be covered by a High Deductible Health Plan (HDHP) on the first day of the month. If you are enrolled in an HDHP, there may be a few circumstances that make you ineligible for an HSA. While you may have an open HSA, you are only eligible to contribute to a Health Savings Account if you are not: Covered by another non-hdhp medical plan, such as your spouse s. Enrolled in Medicare. Covered under TRICARE (unless the benefits consist solely of preventive care or the limited other coverage specifically allowed by law). Claimed as a dependent on another person s tax return. Covered by or can use any FSA funds, including your spouse s. Starting to Use Your HSA How Do I Open an HSA? WageWorks will guide you through this process. First, your employer will notify WageWorks that you want to open an account. Next, you will either receive an email from WageWorks encouraging you to register online or your employer will give you a paper application. Once you finish registration your account will be opened and ready for contributions. How Much Can I Contribute to my HSA? Your contribution limit for any given year will depend upon when you become eligible, the type of insurance coverage you have and your age. If you have questions about your contribution limit you can call an HSA expert at WageWorks or consult the IRS Form 969. Isaac is opening an HSA When Isaac signed up for the High Deductible Health Plan, he selected the option that allowed him to open an HSA. Isaac received an email notification that he could open his account by going to: https://flexreservehsa.wageworks.com. He clicked the link and started registration. WageWorks sent him an email to confirm his email address, and once confirmed, he was able to finish the application with an electronic signature. His application went to the bank and his account opened the next morning.
How Much Should I Contribute to My HSA? Fortunately, WageWorks software allows you flexibility when contributing to your HSA. To get the most from your HSA, you should contribute the maximum allowed each year. Savers contribute the maximum allowed by law. By doing so, they lower their taxable income, save payroll taxes, save income taxes and sometimes have tax-free earnings from the savings in their account. But this contribution amount is not possible for everyone. Planners contribute the most they can each paycheck, building their HSA savings over time. They also lower their taxable income, save payroll taxes, save income taxes, and sometimes have tax-free earnings from their savings. When they have expenses, they can easily use their HSA debit card to pay. Unlike savers, planners don t get all the possible tax savings. Most people don t think about their HSA until they have an expense. The WageWorks FlexReserve makes this pay-me-later strategy easy. These people can continue receiving the same amount as always in their paycheck, while also receiving a small tax advantage when they reimburse themselves for eligible expenses they may have. When Can I Use My HSA? Your Health Savings Account can be used to pay for qualified medical, dental and vision expenses, including COBRA premiums, Medicare premiums (Part A, Part B, Part D) or Long Term Care insurance premiums. A spouse or any tax dependent can incur these expenses. It doesn t matter if your spouse or children are on your insurance if your children are tax dependents or you file jointly with your spouse, you can use the money in your HSA to pay for their eligible medical expenses. John s HSA Strategy John is a saver. When John signed up for an HSA he determined that he could save by contributing the maximum for his family plan. If he contributes the maximum allowed for each paycheck, he will reach his IRS contribution limit for the year on his last paycheck of that calendar year. John will save 35% in taxes on his contributions. He plans to invest the money in a mutual fund, allowing him to earn interest on it the whole year, tax-free. John s long-term plan is to contribute the maximum each year until he turns 65. At that point he can withdraw all of his HSA savings without penalty. At this point, his tax rate will be lower than it was prior to retiring, and he can continue to pay for medical expenses with his savings, completely tax-free.
What Are Qualified or Eligible Medical Expenses? IRS Publication 502 lists qualifying and nonqualifying expenses for tax deduction purposes that may be reimbursed (unless otherwise indicated) under most Health Savings Accounts. If you have any questions, contact the HSA Administrator. Here is a sample list: Doctor office visits Dental care and braces Prescriptions Long-term care Chiropractor Acupuncture Hearing aids Smoking cessation programs Physical therapy Psychological counseling Birth control and vasectomy Transportation expenses Bandages and crutches Breast pump and nursing supplies Glasses, contacts, LASIK surgery If you withdraw money from your Health Savings Account to use for other reasons, you will be subject to income tax on the amount of the withdrawal. In addition, you may be subject to an additional 20% penalty tax if you are under age 65. If you find yourself in this situation, you should consult a tax expert or contact the FlexReserve HSA support team. How Much Do I Save in Taxes With an HSA? The amount you save in taxes will depend on whether or not you make pre-tax or post-tax contributions and how you spend the money from your HSA. Individuals that make pre-tax contributions to an HSA and then spend the money on eligible medical expenses will save the most. Using this process will avoid all taxes, including taxes on income, payroll, interest and earnings. Post-tax contributions will not avoid payroll taxes. Using money in an HSA for non-eligible expenses will not avoid any taxes and will incur a penalty unless the individual is over 65 years old. Individuals that are 65 or older will only pay income taxes on amounts spent from their HSA on non-eligible medical expenses. Filing Taxes With An HSA What Do I Need to Do When I File Taxes? With an HSA, you need to do one additional step for tax filing. You ll need to file IRS Form 8889. What Might Incur Taxes On My HSA Contributions? If corrections are not made, over-contributions to your HSA and distributions for non-eligible medical expenses would be taxed. The amounts that are over-contributed or spent on ineligible expenses would be subject to both income taxes and a penalty tax. If either of these mistakes are made, it may be possible to correct the mistake and avoid taxes on the amounts that were over-contributed or used incorrectly. IRS form 8889 provides further information on how the taxes are calculated. Also, in some states, HSA contributions and/or earnings are subject to state taxes. At WageWorks we do our best to keep up with the changing tax laws. It is best to consult a tax professional to determine your tax liability.
Common HSA Questions Who owns the money in my HSA? Does the money in the HSA expire? Are HSAs use it or lose it? You own the money in your HSA. Once you or your employer puts money in your HSA it will stay there indefinitely until you use it, just like a regular savings account. There are no use it or lose it rules regarding HSAs. How can you make deposits to your account besides payroll contributions? You can transfer money from other accounts or deposit it into your account. It is important to keep in mind that you will not avoid all taxes if you do this. If you have an established HSA with another bank, you can transfer or rollover the funds between accounts without paying taxes. What if I m no longer eligible for an HSA? When you are no longer eligible for an HSA, you may not make contributions to it without incurring a penalty. Otherwise, everything is the same. The account remains open and you can still use the money for eligible medical expenses without any penalties. When you become eligible for an HSA again in the future, you can continue making contributions. You should check your eligibility before making contributions to your HSA. Also, contributions limits are pro-rated when you are eligible for only part of the year. The IRS Instructions for Form 8889 will help you determine your contribution limits. The term savings herein refers only to tax savings and actual savings are dependent on individual tax rates. No part of this document constitutes tax, financial or legal advice. Please consult your advisor regarding your personal situation and whether this is the right program for you.