High Deductible Health Plans have become very popular over the past few years as insurance premiums have continued to rise. High deductible plans allow you to use an H.S.A. or Health Savings Account to manage your upfront expenses. Each year, the IRS sets the contribution limit for funds that you are allowed to put into your H.S.A. bank account. If you don’t pay attention to the contribution limits each year, you put yourself at risk of paying extra taxes to the IRS – let’s be honest, no one wants to do that!
Here are the rules:
Health Savings Accounts are a type of savings account designated specifically for health care spending. These HSAs are tied to the use of a High Deductible Health Plan (HDHP) for health insurance. A plan may qualify as a HDHP if the deductibles are $1,350 per year or higher for individuals, or $2,700 per year or higher for family plan.
Your contribution limits are generally determined by the type of qualifying high-deductible health plan you have — individual or family coverage. The amount you or anyone else can contribute to your HSA depends on the type of high-deductible health plan (HDHP) you have, your age, the date you become an eligible individual, and the date you cease to be an eligible individual are also considered.
Here are the contributions for 2017 and 2018:
|Individual Coverage||Family Coverage|
You have until the tax-filing deadline (generally April 15) of the following year to make allowable contributions. If you contribute more than the allowable amount to your H.S.A by accident or because you ended coverage in a qualifying high-deductible health plan and/or no longer meet the other requirements defined by the IRS, you will have to count the extra amount as taxable income and the IRS may have you pay a 6% excise tax on the excess contributions. So, make sure to keep track of your contributions to avoid a penalty.
If you are 55 or older, you can make “catch-up” contributions, meaning you can deposit an additional $1,000 per year. If your spouse is also 55 or older, he or she may establish a separate HSA and make a “catch-up” contribution to that account.
Here’s where it can get a little tricky. When you enroll in a qualifying high-deductible health plan and open an HSA before the first day of December, you can contribute the total allowable amount for that year. However, if you end your coverage under a high-deductible health plan, you should calculate the pro-rated allowable contribution based on the number of months you had qualifying coverage.
For more information on the rules and regulations regarding H.S.A. contributions or to determine your specific eligibility, contact your tax advisor or the IRS – visit www.IRS.gov and search for IRS Publication 969. A Litchfield Bancorp No-Fee Health Savings Account (HSA) is a convenient solution to lowering your tax bill while taking the sting out of ever rising medical costs and higher deductible health plans. Contact one of our specialists today!
Branch Manager – Torrington