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HSA Health Plan Rules

Put away tax-free dollars for medical care with a Health Savings Account (HSA)--but only if you qualify. The IRS considers HSAs “tax-favored” and places restrictions on who can own them. Each year they adjust the rules to compensate for inflation, and, over time, this has become a good thing for consumers.

  1. HSA Qualifications

    • IRS approval

      To receive the IRS's blessing for your HSA: You cannot receive (or even quality for) Medicare; you must be younger than 65; you must have health care coverage through a qualifying high deductible health plan (HDHP); you cannot be a dependent on another person's income tax return; you cannot have coverage under a non-HDHP health insurance plan.

    HSA Deposit Limits

    • Stay under the deposit limit

      The IRS limits how much money you may contribute to your HSA each calendar year. If you deposit more than allowed, the IRS will charge a 6 percent penalty on the overage and tax the overage as normal income.

      It doesn't matter whether you deposit the excess money or your employer deposits it on your behalf. The IRS considers it your responsibility to keep total contributions below the limit.

      In 2010, the IRS set the HSA deposit limits at $3,050 for a single person and $6,150 for a family. If you are over 55 years old, however, they do allow "catch-up" contributions.

    Eligible Expenses

    • Pay for health-care

      As long as you spend your HSA dollars on qualifying medical expenses, they are not subject to tax--and your options are extremely broad. Here are several of the approved expenses: visit your doctor, mental health specialist or chiropractor; go to your hospital; purchase prescription medications, vaccinations, diabetes supplies or a stop-smoking program; pay for lab work, ambulance services, surgical procedures, acupuncture and equipment for physical therapy. You may even use HSA dollars for contact lenses, cleaning solution, eye examinations, glasses, and non-cosmetic dental procedures, over-the-counter pain, allergy relief and cold medications.

    Who Benefits

    • Pay for your child's health-care.

      Even if you have only single coverage, you may spend your HSA dollars on eligible health-care expenses for your spouse or other dependents.

    Turning 65

    • Happy 65th birthday!

      If you are younger than 65, be careful to spend HSA dollars only on eligible medical expenses. If you purchase something ineligible, the charge will likely go through, but the IRS will charge a 10 percent penalty on those dollars and tax them as normal income.

      If you are older than 65, you may then spend HSA dollars on anything you choose without the 10 percent penalty, but you will have to pay normal income tax on the dollars you spend for things other than eligible medical expenses.

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