TECHNICAL GUIDANCE

Health Savings Accounts, or HSAs, were created by Congress to combat rising medical costs by providing an incentive for more consumers to pay "first-dollar" medical expenses.

Links to Common Referenced Technical Guidance

• "NEW" HSA Government Updates
• 2006 Indexed Amounts for Health Savings Accounts (Treasury Notice js-2996) (October 28th, 2005)
• Clarifying Contributions of Spouses to HSA Accounts Revenue Ruling 2005-25 (April 14th, 2005)
• Tax Treatment Partnership and S-corp (January, 11, 2005)
• HSA Correction - Announcement on Medicare Eligibility (September 9, 2004)
• Administrative, Procedural & Misc. -- Notice 2004-50 (July 23, 2004)
• State Law Transition Relief -- Notice 2004-43 (June 25, 2004)
• Relationship of HSAs, FSAs & HRAs -- Rev. Ruling 2004-45 (May 11, 2004)
• Preventive Care Clarification -- Notice 2004-23 (March 30, 2004)
• Administrative, Procedural & Misc. -- Notice 2004-25 (March 30, 2004)
• Administrative, Procedural & Misc. -- Rev. Proc. 2004-22 (March 30, 2004)
• Health Savings Accounts -- Rev. Ruling 2004-38 (March 30, 2004)
• Department of Treasury Question & Answer -- Notice 2004-2 (Dec. 22, 2003)

Qualified High Deductible Health Plan (HDHP) Limits for 2009

An individual or family must have a high deductible health plan in order to open a Health Savings Account (HSA). The IRS has set annual deductible and maximum out-of-pocket amounts and are subject to change each year. For taxable year 2009 the IRS has set the following limits.

Contribution Limits for 2009

The total amount you or your employer may contribute to an HSA for any taxable year is dependent upon whether your have an individual (self-only) or family (self plus one) coverage under a high deductible health plan as shown in the table below.

A Health Savings Account beneficiary (account holder) is able to contribute 100% of their qualified HDHP deductible up to the IRS contribution limit. This limit is subject to change each year by the IRS and shown below for this tax year 2009.

Normally, the HSA contribution is pro rated based on the number of months that an individual during the year a person was an eligible individual. The new provisions provide an exception to this rule that will allow individuals who become covered under an HSA-eligible plan in a month other than January to make the maximum HSA contribution for the year based on their coverage in the last month of the year. This eliminates a common barrier to switching to HSA-eligible coverage. If an individual does not stay in the HSA-eligible plan 12 months following the last month of the year of the first year of eligibility, the amount which could not have been contributed except for this provision will be included in income and subject to a 10 percent additional tax.

Example:
You established a qualified health plan in December 2008 and contributed the maximum allowed. Then in January 2009 you contributed the maximum contribution for that tax year.
Scenario 1:You maintained coverage through December 31, 2009. You are eligible for the maximum contribution for both 2008 and 2009.
Scenario 2:You ended coverage April 1, 2009. Eleven-twelfths of the December 2008 contribution must be treated as income, plus a 10% penalty on that amount must be paid. Nine-twelfths of the funds deposited in January must be taken out of the account as an excess contribution (and treated as income) but no 10% penalty is incurred.

"Catch-Up" Limits for 2008

Additional "Catch-up" Contribution limits for 2009 is $1000 and indexed annually, currently as far out as 2009. If the account holder turns age 55 during the taxable year, the "catch-up" contributions must be prorated. 1/12 of the annual $700 "catch-up" contribution is calculated from the month the account holder has turned 55 by the first day of the month.

Example Joe turns 55 on May 5th, 2006 under IRS guidelines Joe is not deemed qualified to make the catch-up until June 1st, 2006 and must be prorated accordingly ($700/12 = $58.33/month X #of months Joe is age 55 (7 months June - December). Joe can make a $408.33 catch-up contribution for 2006, given he is eligible to make contributions with a compatible IRS Qualified High Deductible Health Plan (HDHP).

If both spouses are eligible to make the $700 catch-up contribution, each spouse must open their own separate Health Savings Accounts (HSAs), in order to maximize both spouses making the additional $700 "catch-up" contribution for 2006.