Q & A: Health Savings Account

What is a Health Savings Account (HSA)?

It is a tax exempt trust or custodial account that you set up for the purpose of saving money to pay for future medical costs or other related expenses you, your spouse and your dependants may incur.

Why were HSA's created?

HSA's were created in response to 1) rising costs to health care and health insurance; and 2) large number of individuals and families with a qualifying High Deductible Health Plan (HDHP). It was also a way to help put health care decisions back into the hand of the consumer.

Who is eligible for an HSA?

To be an eligible individual and qualify for an HSA, you must meet the following requirements:

• You are covered under an HDHP on the first day of such month.
• You are not covered by any other health plan that is not an HDHP (included Flexible Spending Accounts).
• You are not enrolled in Medicare (generally those who are 65 years or older).
• You cannot be claimed as a dependent on someone else's annual tax return.

What is a High Deductible Health Plan (HDHP)?

An HDHP has a higher annual deductible than most health plans and a maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses.

HDHP Annual Deductible Maximum Out-of-Pocket Expenses
Tax Year Individual Cov. Family Cov. Tax Year Individual Cov. Family Cov.
2008 $1,100 $2,200 2008 $5,600 $11,200
2009 $1,150 $2,300 2009 $5,800 $11,600

Can I have a joint HSA?

You CANNOT have a joint HSA. Each spouse who is an eligible individual must open a separate HSA.

What are an HSA owner's responsibilities?

If you are eligible, you can establish an HSA similar to the way you would for an IRA. You are responsible every year for determining your allowable annual contribution to your HSA. You are also responsible for maintaining which qualified medical expenses are eligible for reimbursement through an HSA distribution.

Who can contribute to my HSA? How much can I contribute to my HSA?

If you meet eligibility requirements for an HSA, your family members, your employer and any person may make contributions to you HSA in the same year. This is the same if you are self-employed or unemployed

The chart below indicates the contribution limits for qualifying HSA's for individual and family HDHP's. There is also a "catch up" contribution allowed for eligible incividuals who are 55 yeas or older by the end of their taxable year and haven't enrolled in Medicare.

Contribution Limits
Tax Year Individual Family Additional Catch up Contribution
2008 $2,900 $5,800 $900
2009 $3,000 $5,950 $1,000
2010 Subject to COLA's* Subject to COLA's* $1,000
*cost-of-living adjustments

How do I claim the Federal tax deduction for my HSA contribution?

HSA contributions are fully deductible, the earnings grow tax deferred and distributed to pay or reimburse for qualified medical expenses are tax free.

Deduction contributions may be made by anyone other than your employer as long as they do not exceed the maximum annual contribution amount. Employer contributions are not wages for income tax purposes. Transfers and rollovers from HSA's, IRA's, Archer medical savings accounts, health reimbursement arrangements and health flex spending accounts are not deductible.

When is the contribution deadline for funding an HSA?

For regular and catch-up HSA contributions, the deadline is your federal income tax return due date, excluding extensions for that taxable year. The due date for most taxpayers is April 15th.

How are HSA distributions taxed?

HSA distributions that are used to pay or reimburse qualified medical expenses incurred by you, your spouse or dependents are not included in gross income. However, any other types of distributions not used to pay for qualified medical expenses or rolled over are subject to an additional 10 percent tax (unless they are made after your death, your disability or you have reached over age 65). HSA custodians/trustees are not required to determine whether HSA distributions are being used for qualified medical expenses. It is recommended to always consult a tax advisor for qualified tax advice regarding taxation on your HSA.

Am I able to return a mistaken distribution?

If you mistakenly make a distribution from your HSA you may be able to return the assets to the same HSA. However, the law does not require a financial institution to accept a return of a mistaken distribution. If you are able to return a mistaken distribution, you will need to be prepared to provide the Internal Revenue Service (IRS) with clear and convincing evidence that your HSA distribution was mistakenly taken out by fact of a reasonable cause. A mistaken distribution can be returned no later than April 15th following the first year you have known the distribution was in fact a mistake.

How can I make a distribution from my HSA?

You may make a distribution by any of the following methods:

• check
• at any HawaiiUSA FCU branch location
  

How is my HSA activity reported?

The IRS requires individuals to file Form 8889 if they (or someone on their behalf, including their employer) made contributions to their HSA account. Form 8889 is also required if individuals take funds out of an HSA, even if they do not make a contribution to the HSA that year.

What would happen to my HSA in the event of my death?

If your spouse is the beneficiary of your HSA, the HSA will become his/her HSA. If the beneficiary is someone other than your spouse, the HSA ceases to be an HSA as of the date of your death. If your beneficiary is your estate, the HSA's fair market value on the date of your death is included as income on your income tax return. For other beneficiaries, the HSA's fair market value is included as income for the recipient in the tax year of your death.

How can I get more information about an HSA?

You can visit the Internal Revenue Service's website at www.irs.gov for more information.

How can I get more information on what medical expenses are covered?

You can visit the Internal Revenue Service's website at www.irs.gov and review the IRS Publication 502 forms for a complete listing of qualifies and non-qualified medical expenses.

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