HSA’s allow eligible individuals to pay for health care expenses with pre-tax funds (on a tax-free basis). An HSA works like an IRA… You make a contribution to your own Health Savings Account, and you can take a tax deduction for this amount. The money in the account can then be used to pay for qualified medical expenses that are not covered by your health insurance. Further, the funds can accumulate, and they don’t have to be withdrawn. Interest can be earned on these funds also, tax-free.
Distributions for purposes other than for qualified medical expenses are taxable and subject to the 10% penalty. This is similar to an IRA, as remember, you received a tax deduction for putting funds into this HAS.
The annual contribution limit is $5,950 for family coverage, under age 55, ($6,950 if 55 or older). The minimum annual deductible (see eligibility issues below) is $2,300 for family coverage. The maximum annual deductible and out of pocket expense limits are $11,600 for family coverage.
Contributions must be made by April 15th.
You don’t need W-2 earnings or self-employment income to make deductible contributions to an HSA.
To be eligible, you must be covered by a high deductible health plan, you cannot have other health coverage, cannot be enrolled in medicare and can’t be claimed as a dependant on someone else’s tax return.