2020 Key HSA Features
High deductible health plans (HDHP) in conjunction with a health savings account (HSA) are increasing in popularity as more employees opt for this type of insurance plan and it’s all important tax advantage on the health savings account. HSAs can be used to pay for expenses covered under an HDHP until the deductible has been met. They can also be used to pay for other qualified medical expenses that are not covered under an HDHP such as dental and/or vision expenses.
Contributions, interest and earnings, and amounts distributed for qualified medial expenses are exempt from federal income tax, Social Security/Medicare tax, and most state income taxes. It is important to know that along with the potential tax savings there are strict rules for HSAs’ contributions and distributions, as well as HDHP cost sharing. Below are some of the key features for HSAs in 2020.
What is an HSA? It is a tax-exempt trust or custodial account established by an eligible individual to pay for qualified medical expenses. This account works in conjunction with an HDHP.
The new HSA annual contribution limits as of 1/1/2020
- $3,550 for self-only HDHP coverage
- $7,100 for family HDHP coverage
- There is a $1,000 “catch-up” contribution for those who are age 55 or older
New HDHP Cost Sharing Limits for 2020
- $1,400 minimum deductible for self-only HDHP coverage
- $2,800 minimum deductible for family HDHP coverage
Potential Tax Benefits
- An employee’s contributions are tax-deductible, or pre-tax if made by salary reduction
- The employer’s contributions are excluded from gross income and in general not subject to employment taxes
- Interest or earnings on HSA amounts are not included in gross income while in the account
- Tax-free distributions from the HSA are used to pay for qualified medical expenses
Employees are eligible for an HSA if:
- They are covered under an HDHP
- They are not covered by any other health plan that is not an HDHP, except for certain limited types of coverage
- They are not enrolled in Medicare
- They may not be claimed as a dependent on another person’s income tax return
CONTRIBUTIONS & DISTRIBUTIONS
Who Contributes? The employee, employer, or both. *
*Family members or any other person may also contribute; employer contributions through a cafeteria plan are subject to the Section 125 nondiscrimination requirements
Are there contribution limits? The maximum contribution for self-only coverage is $3,550 and $7,100 for family coverage.
What distributions are allowed? Distributions must be used for qualified medical expenses of the employee (spouse and children if a family plan) and are tax-free.
When are distributions allowed? Participants of an HSA may receive distributions at any time for qualified medical expenses not reimbursed by the HDHP.
- Balances remaining in the HSA at the end of the year are generally carried over to the next year
- The account is not subject to COBRA
- The employee is the owner of the HSA account
For more information regarding an Employee Benefits program, as well as high deductible health plans and health savings accounts for your organization, contact Billy MacNair, Senior Vice President at Brown & Brown Benefit Advisors, firstname.lastname@example.org.
“This content is strictly informational and should not be used as specific advice on insurance products, legal, accounting and/or tax related matters. Insureds should always contact the appropriate licensed professional for their insurance, legal, accounting or tax needs.”