TAX BENEFITS

Health Savings are truly the "Triple Tax Play."

• Tax-Deductible Contributions
• Tax-Free Withdrawals
• Tax-Deferred Growth.

Tax Deductible Contributions
A Health Savings Account (HSA) is an IRA-like account that is designated exclusively for covering qualified medical expenses incurred by the account beneficiary (the person who establishes the account) and his or her dependents. Over the life of your Health Savings Account, you could save thousands of dollars in taxes. Employer take advantage of the HSA being tax deductible for the portion they contribute to each employee. Employees cannot take the employer contributions as a deduction.

Tax Free Withdrawals
Funds grow on a tax-deferred basis, and if the funds are used for an eligible medical expense, the funds are tax-free. Like many retirement accounts the funds roll over from year to year (No "use it or lose it" rules), and funds used after age 65 are able to be used tax-free for eligible medical expenses or at an individuals normal tax rate for other purposes.

Tax Deferred Growth
Tax-deferred -- HSA funds grow without being subject to taxes until they are used for non-eligible medical expenses. However, if used for qualified medical expenses the funds can be withdrawn tax free. The U.S. Treasury has provided an illustrative example of the reduction in Federal Income Tax from HSA Contributions in 2005. HSA Tax Savings.

Federal versus State Tax Information
The Health Savings Accounts are a Federally qualified product, therefore, individual States can exercise their right to either comply with the Federally established guidelines or establish their own guidelines concerning the State tax treatment of HSAs. However, regardless of each individual State tax treatment, individuals will receive tax-favored treatment on their Federal Income Tax Return.

Some states have benefits mandates that require benefits to be paid before the health plan deductible is satisfied. These state mandates may prevent HSA plans from being sold in those states. The Treasury Department will give states until January 1, 2006 to make changes in their laws to allow HSAs to be sold without being subject to these mandates. Therefore, Health Savings Accounts are made available through the federal government on a tax favored basis. To determine if your state also provides tax benefits for Health Savings Accounts, please contact your state tax administrator.

Home Federal Bank is not providing, nor administering any tax advice and cannot be held liable for the information provided below. The information for each State listed below and the contents and accuracy is based on information provided by each individual State as a link only. Contact your qualified tax advisor in your applicable State.

States that follow federal tax treatment
These states have indicated they will follow the tax treatment established by the federal government for Health Savings Accounts at the state level.

Must pass legislation at the state level
These states have indicated that they must pass state legislation before Health Savings Accounts will receive a tax benefit for Health Savings Accounts at the state level. Tax consequences may exist for contributions and rollovers from an MSA to an HSA. Please consult your state tax resource or a qualified tax advisor.

States that have not indicated their position on HSAs
These states have not responded to requests for information or standing of their States position on the matter. Please consult your state tax resource or a qualified tax advisor. Links have been provided to your State tax resource simply as a courtesy.

States that are not affected by federal income tax guidance