Health Savings Account (HSA)

What is a Health Savings Account?

An HSA is a savings account for setting aside tax-free funds to be used for non-covered medical expenses.  With an HSA you may choose individual coverage or family coverage.

How do I establish an HSA?

Any insurance company or bank* can be an HSA trustee or custodian.  Also, any other person approved to be a trustee or custodian of IRAs or Archer MSAs is automatically approved to be the trustee or custodian of an HSA.

Can I have both an HSA and Health Reimbursement Arrangement or Medical Reimbursement Policy?

You cannot have both an HSA and HRA nor can you have both an HSA and MRP.  The only exception to this is if you have a “limited purpose” HRA or MRP.  Limited purpose would mean that the expense account would cover only dental and/or vision expenses but NOT medical expenses.

Who qualifies to contribute to an HSA?

An individual is eligible to establish an HSA as long as the following 3 conditions are met:

1.      the individual is covered under a high-deductible health plan and

2.      the individual is not covered by any other health plan that is not a high-deductible health plan and

3.      the individual is not enrolled in Medicare.

The employee or the employer may make the contributions to an HSA.  Employer contributions must be comparable for all employees with comparable coverage.

What qualifies as a high-deductible health plan?

For 2020 a high-deductible health plan would be a plan with an annual deductible of at least $1,400 ($1,350 for 2019) for individual coverage, but not more than $6,900 ($6,750 for 2019).  For family coverage a high deductible health plan would be a plan with an annual deductible of at least $2,800 ($2,700 for 2019) and not more than $13,800 ($13,500 for 2019).

What are the contribution limits?

For 2020 the maximum contribution for individual coverage would be $3,550 ($3,500 for 2018).  For family coverage the maximum would be $7,100 ($7,000 for 2019).  In addition, for those ages 55 to 65 there is a catch-up contribution.  See chart below.

Year Add’l Catch-up Contribution
2007 $800
2008 $900
2009 – 2020 $1,000

What about tax treatment?

For dual-status ministers any individual contributions would be taxable for Self-employment purposes but not taxable for federal income tax.  Employer contributions would eliminate the Self-employment tax but are subject to discrimination rules.  Employer contributions would need to be the same for all comparable employees.

What are the advantages and/or disadvantages?

Some advantages of the HSA are that:

  • You don’t pay taxes on money going into your HSA.
  • It is portable from church to church because it is managed by a third party other than the church so the account is yours even if you change jobs.
  • Funds can be used for non-covered out of pocket medical expenses until depleted.
  • Any unused money at the end of the year rolls over to the next year so the account will build if you do not have medical expenses.
  • After the age of 65 you can withdraw funds for non-medical expenses without penalty.

Some disadvantages are:

  • The cost of administering it with a third party.
  • The accompanying high deductible insurance requirement.
  • Stiff penalties for withdrawing the funds for non-medical expenses before the age of 65.

Additional Information:

http://www.irs.ustreas.gov/pub/irs-pdf/p969.pdf

 
Attention: Tax Law is subject to interpretation. Please be advised that the material contained on this Web site is for information only and is not intended to be a substitute for professional legal advice. The Stewardship Services Foundation endeavors to update the information on this site on a regular basis, but cannot guarantee its accuracy at all times.