Frequently Asked Questions
Your Health Savings Account (HSA) coupled with a High Deductible Health Plan (HDHP) can help you save money on your medical expenses. By choosing the HSA Plan you can save significantly on your health care premiums.
A Health Savings Account (HSA) is an individually owned, tax-advantaged bank account that allows you to accumulate funds to pay for qualified health care expenses. To qualify, you must be covered under a qualified high-deductible health plan (HDHP) as defined by IRS regulations. The State Health Plan Savings Plan is a high-deductible health plan. You can contribute to your HSA through pretax payroll deductions.
You can pay for current qualified health care expenses or save the funds for retirement health care expenses. You are responsible for monitoring your account, as well as ensuring distributions are for qualified expenses and that contributions do not exceed limits set by the IRS. You must keep records and documentation of all health care expenses for which distributions are taken.
HSAs offer a triple tax advantage:
- Contributions are 100 percent tax-deductible for the account holder.
- Funds grow on a tax-deferred basis and funds are not taxed if used for an eligible expense.
- After age 65, funds can be used tax-free for eligible expenses, including Medicare premiums, or taxed with no penalty for other expenses.
As you make contributions to your HSA, you can save the funds or spend the funds on current health care expenses. Unused funds and interest carry forward, without limit, from year to year. As the account holder, you own the account and can keep the account even if you change jobs or stop working.
To qualify for an HSA, you must meet the following requirements:
- You must be covered by a qualified high-deductible health plan (HDHP), such as the Savings Plan
- You must have no other health coverage, including a spouse’s plan that provides benefits covered by your HDHP. You can, however, have accidental, disability, dental, vision or long-term care coverage that provides benefits for a specific disease or illness, a fixed amount for hospital stays or liability coverage, such as workers’ compensation.
- You are not enrolled in Medicare.
- You do not receive health benefits under TRICARE.
- You have not received Veterans Administration (VA) benefits within the past three months.
- You cannot be claimed as a dependent on someone else’s tax return.
A Limited-use MSA is a Health Savings Account (HSA)-compatible MSA. The Limited-use MSA allows you to set aside money pretax to pay for things the Savings Plan does not cover, such as dental and vision care expenses. If you are enrolled in the Savings Plan and make contributions to an HSA, you are eligible to participate in a Limited-use MSA, which will help maximize your tax savings. The HSA can be used to pay all types of medical expenses incurred now or in the future; however, the Limited-use MSA can only be used to pay for current year dental and vision expenses.
Here’s a tip. Plan carefully to preserve the value of both accounts by using your HSA funds as a way to save and invest for future health care expenses, or large unexpected expenses. Use your Limited-use MSA to pay for routine vision and dental care expenses you incur each year.
Enrollment and Contributions
To open your HSA through Central Bank, you will need:
- Your driver’s license, address, Social Security number and birth date
- The name, address, Social Security number and birth date of all beneficiaries. Beneficiaries may be added/changed any time after account opening
Distributions from your HSA
Yes. As long as the qualified health care expense occurred after you opened the HSA, you can pay for the expense or reimburse yourself with HSA funds. Keep copies of your itemized receipts and insurance plan explanation of benefits (EOBs) to verify your funds were used for qualified health care expenses, not paid for by another source or taken as an itemized deduction for a prior tax year.
Qualified expenses are defined by the IRS as amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease or for the purpose of affecting a structure or function of the body, as well as for transportation primarily for and essential to such care. Qualified expenses generally do not include insurance premiums, but do include premiums for long-term care insurance, COBRA coverage, health care coverage while receiving unemployment compensation, or Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare Supplement (Medigap) policy).
HSA funds can be spent on current year expenses or saved for future expenses to pay for qualified medical, dental, vision and prescription drug expenses as defined in IRS Publication 502. Funds used for non-health care expenses are subject to income tax and, if you are under age 65, are subject to a 20 percent IRS penalty.
Yes. Individual account holders must file IRS Form 8889 with their annual tax return to report contributions and distributions from the account. Central Bank, the bank custodian, will send two tax forms to you:
- Form 5498-SA to report the contributions and rollovers made during the previous calendar year; and
- Form 1099-SA to report the total amount of distributions from the HSA.