The article below is from BenefitsPRO, titled “10 weird HSA FAQs,” by Whitney Richard Johnson.
Health savings accounts help employees sock away money for health care costs. They’re used along with a high deductible health insurance plan, and they offer some great tax benefits.
Contributions made to HSAs lower one’s taxable income, and payments made from an HSA aren’t taxed. Plus, the funds can be invested and interest can accrue in an HSA – tax free.
Used with care, HSAs can be a smart financial tool. But they’re also potentially complex.
For better or for worse, the responsibility is on the employee to make sure he or she stays within the rules of the game. For some this is empowering. For others, it’s intimidating.
Whether you’ve already got an HSA or are considering it, take a look at these 10 potentially weird, possibly little-known FAQs about HSAs.
#1: What is the HSA eligibility rule regarding not being a dependent on someone else’s income tax return? If you are a dependent on someone else’s tax return, are you eligible for an HSA?
A: No. This rule serves primarily to prevent children from opening and funding HSAs. The rule does create some interesting scenarios for adult children.
#2: Can HSA owners that enroll in Medicare use their HSA to pay for Medicare premiums even though they are no longer HSA-eligible?
A: Yes. The majority of Americans will start Medicare at age 65 and therefore lose eligibility for an HSA. Losing eligibility for an HSA means that the HSA owner cannot contribute new money but does not stop a person with an HSA balance from continuing to use that balance for medical expenses.
Someone age 65 or older has a special opportunity to use that money to pay for Medicare premiums. This is an incredible feature of HSAs: the ability to pay for Medicare premiums with pre-tax dollars.
However, this feature is only available to Americans that have built up a balance in their HSAs prior to losing eligibility. The Social Security Administration will directly deduct the Medicare premiums from Social Security payments, so an HSA owner can write a check from their HSA payable to his or her self to reimburse for the Medicare premium paid directly by Social Security. Continue reading