- Distribution is tax-free if taken for "qualified medical expenses".
- Now includes over-the-counter drugs
- Now includes over-the-counter drugs
- Qualified medical expense must be incurred on or after the HSA was
established.
- If HDHP coverage effective on first day of month, HSA can be established as early as first day of same month
- If HDHP coverage effective any day other than first day of month,
HSA cannot be established until first day of following month
- Tax-free distributions can be taken for qualified medical expenses
of:
- person covered by the high deductible
- spouse of the individual (even if not covered by the HDHP)
- any dependent of the individual (even if not covered by the HDHP)
- If distribution is not used medical expenses
- Amount of distribution and
- 10% additional tax except
- Individual dies or becomes
- Individual is age 65
- "Qualified medical expenses" do not include other health
insurance (including premiums for dental or vision care)
- Exceptions:
- COBRA continuation coverage
- Any health plan coverage while receiving unemployment compensation
- For individuals enrolled in Medicare:
- Medicare premiums and out-of-pocket expenses (Part A, Part B, Medicare HMOs, prescription drug coverage)
- employee share of premiums for employer-based coverage
- Cannot pay Medigap premiums
- Qualified long-term care insurance premiums
- Should the HSA account holder keep receipts? YES!
- May need to prove to IRS that distributions from HSA were for medical expenses and not otherwise reimbursed
- May be required by insurance company to prove that HDHP deductible was met
- Not all medical expenses paid out of the HSA have to be charged
against the deductible (e.g. dental care, vision care)
- HSA Distributions can be used to reimburse prior years’ expenses
as long as they were incurred on or after the date the HSA was established.
- No time limit on when distribution must occur
- Individual must keep records sufficient to prove that:
- the expenses were incurred,
- they were not paid for or reimbursed by another source or taken as an itemized deduction
- Mistaken HSA distributions can be returned to the HSA.
- Clear and convincing evidence must be shown that the distribution was a mistake of fact
- Must be repaid by April 15 of the year following the year in which the individual knew or should have known the distribution was a mistake
Source: http://www.ustreas.gov/offices/public-affairs/hsa/pdf/all-about-HSAs_072208.pdf
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