HSAs (Health Savings Accounts) are medical savings accounts that must be used in conjunction with a high-deductible health-care plan. Employers, employees and others, like family members, may contribute to an individual’s HSA. HSAs are considered to be extremely valuable since they are portable and allow the account holder to take the account with him if and when he changes jobs.
In 2012, individuals may contribute $3,100 to their HSA, while a family may contribute up to $6,250. The HSA contribution maximums are indexed for inflation and are increased typically on an annual basis. The contribution limits for individuals and families will increase in 2013. Accordingly, the annual contribution limits in 2013 will be $3,250 for an individual and $6,450 for family coverage. The IRS establishes the contribution limits and will announce increases each year. If you have more than one HSA, the contribution limits are aggregate, so it is important to track the amounts you're contributing to all of your accounts.
Individuals who are 55 years old or older are eligible to make a catch-up contribution. Your age as of the last day of your tax year will determine your eligibility. This allows eligible individuals to contribute an additional $1,000 to their health savings account each year. If a couple is married and both spouses are 55 or older, they will be able to contribute $2,000 ($1,000 for each eligible individual). If, however, these eligible individuals are enrolled in Medicare, the contribution limit is reduced to zero. You may not have an HSA when you receive health care through Medicare.
Rules for Married People
Since high-deductible health-care coverage is required in order to utilize a health savings account, the IRS has determined that if either spouse has family coverage through a high deductible plan, then both spouses are treated as having a high-deductible plan. If both spouses have a separate plan, the contribution limit remains the same as the family coverage limit, but the limit will be split equally between each spouse’s plan unless they have determined a different allocation. Again, the limit is viewed in the aggregate; if each spouse has a family plan through separate high-deductible health plans, that does not double the HSA contribution limit for the couple.
If an individual or couple contributes more than the limit to their HSA, serious penalties apply. In the event of an excessive contribution, an excise tax is imposed on the amount over the contribution limit at a rate of 6 percent. The excise tax will continue to be imposed on the excess for the entire period that amount remains in the HSA. To cure an excess contribution and avoid the excise tax, you can withdraw the excess amount before the due date of your tax return for the year in which the excess contributions were made, and include the excess amount in the current tax year instead.
Kay Lee began freelance writing for Answerbag and eHow in 2010. She is an attorney in Washington, DC, practicing since 2006. Lee specializes in employee benefits and executive compensation. She holds a Juris Doctor from the Columbus School of Law and a Master of Laws from Georgetown University Law Center.