Because we all want to save on health care, an increasing number of us and our employers have switched to high-deductible plans paired with a Health Savings Account (HSA). That means remembering certain compliance issues. Here are a couple that you’ll want to avoid.
- Over contributing to a Health Savings Account
Under the IRS, there’s a yearly maximum contribution limit for individual and family Health Savings Accounts. Since you and your employer are permitted to contribute, there is a risk of exceeding the maximum allowed, which could result in a penalty. For 2013, the maximum HSA contribution limit for individual coverage is $3,250 and $6,450 for family accounts.Employers play a huge role in preventing HSA compliance violations. Proper information dissemination about Health Savings Accounts should be used to help employees protect the integrity of their account. Regardless of how much an employer contributes to an employee’s HSA, all of the HSA funds are the property of the employee even after that job has ended.
- Spending HSA withdrawals for anything other than “qualified” health care Most all dental and health care services are qualified for HSA withdrawals, but over-the-counter medicine, like aspirin, is not. Purchases like that can result in a 20-percent penalty.But, these compliance issues really aren’t complicated, so why delay setting up your HSA? It usually only takes about $25 to open an account. Once your HSA is open, you can let it grow with tax-free earnings for a while. In the coming years, you can reimburse yourself for older qualified expenses that you’ve previously paid. There’s no current limit on how far back you can go. So, just because you don’t have a lot in your HSA in the beginning, that doesn’t mean you won’t be able to run your medical expenses through it to make old payments for health care tax deductible.
If your employer is funding your HSA, that’s great! If you are, claim your tax deduction when you file tax returns. You can claim it even if you never spend HSA funds for health care. That’s right – you get the same tax deduction just for saving.