Visit 2hsa.com for the best HSA offerings

dot_clear.gif - 43 Bytes
Home Page

Latest Updates

HSA Basics

Free Healthcare & You Newsletter

Links to related resources

Get an insurance policy for college

Get a short term health insurance policy

Get travel insurance

FEATURED ADVERTISERS:

Free: Fortune Special HSA section


HSA Insights: Terry's Corner

A member of the HSAFinder advisory board, J. Terence MacAvery is a New York attorney and CPA with 29 years of tax service experience working with clients in a wide variety of industries. He was with KPMG in NYC for 27 years, the last 16 years as Partner. For the past two years he has been a Partner with Hamilton & MacAvery CPAs, also in NYC.

The IRS recently issued more detailed guidance on a wide variety of matters relating to HSA’s to supplement earlier pronouncements. In Notice 2004-50, the IRS poses 88 specific questions to which it offers answers and addresses matters related to Eligible Individuals, High Deductible Health Plans (HDHPs), Preventive Care, Contributions, Distributions, Comparability, Rollovers, Cafeteria Plans, Account Administration, Trustees and Custodians and Other Issues. The guidance is welcome and generally useful and reflects an apparent real interest by the government in promoting this new program.

Of particular note are the following:

Q&A 2 makes it clear that eligibility for HSA contributions continues upon eligibility for Medicare where there has not been actual enrolment in the program.

Q&A 16 excludes payments beyond usual, customary and reasonable limits that may be provided by a plan from out-of-pocket maximum determination.

Q&A 36 clarifies that distributions from an HSA for spouse or dependent medical expenses are tax-free even if those individuals are covered by a non-HDHP.

Q&A 39 permits tax-free treatment for a distribution to pay medical expenses incurred in a prior year provided the expenses were incurred after establishment of the HSA.
Q&A 43 allows retirees 65 or older to pay medical insurance premiums with tax-free HSA distributions. In a similar manner, Q&A 45 allows the same treatment for distributions to pay for Medicare premiums.

Q&A 81 I reproduce in its entirety:

“Q-81. Are employers who contribute to an employee's HSA responsible for
determining whether the employee is an eligible individual and the employee’s
maximum annual contribution limit?

A-81. Employers are only responsible for determining the following with respect to an employee’s eligibility and maximum annual contribution limit on HSA contributions: (1) whether the employee is covered under an HDHP (and the deductible) or low deductible health plan or plans (including health FSAs and HRAs) sponsored by that employer; and (2) the employee's age (for catch-up contributions). The employer may rely on the employee's representation as to his or her date of birth.”

In addition to the foregoing notable particulars, there is considerable useful guidance worth noting on various aspects of integration with Cafeteria Plans under Section 125.

EARLIER UPDATES:

1. IRS Requests Comments on Forms Related to HSA’s

In late June, the IRS has requested comment on model documents for trust or custodial agreements for HSA’s. Form 5305-C, Health Savings Custodial Account, and Form 5305-B, Health Savings Trust Account, have been released in proposed form for comment before the final forms are issued. The forms are at www.irs.gov.

"We have received numerous requests from the public for a safe-harbor document like this one. Many banks and other prospective HSA trustees and custodians would like to offer a product off the shelf and be certain that the form of the trust or custodial agreement meets the requirements under the Internal Revenue Code," said Greg Jenner, Acting Assistant Secretary for Tax Policy. "We look forward to hearing any comments that interested parties may have and finalizing these documents for use as soon as possible."

When finalized, the forms, although not required, are available for those trustees and custodians for their use.

2. IRS Grants Permission for States Denying High Deductible Plans

Some states require health plans to offer certain benefits without regard to a deductible or below the minimum deductible contemplated for HSA’s ($1,000 for individuals or $2,000 for families). In a notice dated 7/6/04, the IRS stated that for months before 2006 such plans, if otherwise eligible, will be eligible as HSA’s for tax purposes if the otherwise disqualifying features were required by stat law at 1/1/2004. In effect, the affected states have until the end of 2005 to amend their law to conform to the requirements of the tax law.

3. Limits on Use of HSA’s to Pay for Long-Term Care Insurance Premiums?

HSA distributions may be used to pay for long-term care Insurance premiums. Such premiums qualify as medical expenses for medical deduction purposes subject to certain annual limitations as to amount depending on age. The enabling statutory language in the Internal Revenue Code for HSA’s is not clear about whether similar limitations apply for purposes of distributions eligible for favorable treatment under the HSA rules. Early indications from the IRS are that such limitations do apply. If so, this could lead to discouraging payment of such premiums from HSA’s.


Get an HSA Insurance Quote For You and Your Family

Get an HSA Insurance Quote For Your Business

For an HSA compatible Dental Plan, click here

The Small Business Guide to HSAs is available now!

Unique Educational Programs for Business Managers

Insurance Agents, Partners Wanted