Health Savings Account FAQs

Peoples Bank FREE HSA Checking Account

• Open with a minimum of $50
• Unlimited transactions
• Free HSA Debit Card
• Earns interest
• FDIC Insured
• Balances in the account at the end of the calendar year will remain in the HSA for future medical expenses
• Check with your insurance provider to be certain your plan is HSA qualified
• Avoid IRS issues by complying to the IRS contribution rules each year
• Tax penalties could occur if funds are used for non-qualified expenses
• As a general rule, individual’s must wait until the first day of the following month that their HDHP coverage begins to make their HSA contribution
• This account DOES NOT QUALIFY for Overdraft Privilege

What is a Health Savings Account (HSA)?

A health savings account (HSA) is a tax-advantaged medical savings account for people enrolled in a high-deductible health plan (HDHP). The funds contributed and earnings are not subject to federal income tax at the time and qualified healthcare spending is tax-free. You must be enrolled in a qualified high deductible health plan to enroll. Once enrolled, you own your HSA even if you change jobs or retire. In addition, the balances roll over from year to year.

Eligibility

• Anyone covered under a HDHP on the first day of the month in which the HSA is established
• Not covered by any health plan that is not a HDHP
• Not enrolled in Medicare
• Not eligible to be claimed as a dependent on another individual’s tax return

Benefits

• You choose when to make your contributions and how to invest them
• You can use the funds at any time for qualified medical expenses
• Your contributions are 100 percent tax-deductible
• Your employer’s contributions to your HSA are excluded from your gross income
• Your interest on the account is tax-deferred

Qualified Healthcare Spending – Funds you withdraw from your HSA account are tax-free when used to pay for qualified medical expenses described in Section 213(d) of the Internal Revenue Service Tax Code.

HSA’s are INDIVIDUAL Accounts

The account can only be titled in the name of an individual – even if the owner has a Family Coverage HDHP. If both spouses are covered under a Family HDHP then they can split the contribution between their Individual HSA Account. If they have self-only coverage then they can only contribute to their specific HSA account.

If one spouse has a HDHP and the other spouse has a Non-HDHP – you must check the IRS ruling to determine eligibility and contribution limitations.

A “signer” can be added – but their name CANNOT BE ADDED to checks, debit cards, and account titles.

HSA Beneficiary Options

Spouse Beneficiary if a spouse is the beneficiary, we will transfer or open a new HSA for the balance for the spouse. This is not considered a distribution, so no IRS reporting will occur.

Non-Spouse Beneficiary the HSA ceases to be a HSA as of the date of death. The person/entity who inherited the HSA is required to include the amount of the HSA as taxable income for the year of the HSA owner’s death.

HSA Transactions

Annual Contribution limits for HSA’s are determined by the IRS annually

Catch-Up Contributions are allowed for individuals age 55+ and limits for HSA’s are determined by the IRS annually

HSA Rollover an HSA owner is allowed to rollover his or her HSA. This can only be done for the “same” owner. The funds must be re-deposited within 60 calendar days following the date of receipt of the HSA distribution. Only one rollover is allowed per year, 12 full months must pass before the HSA owner can transact another rollover, regardless of how many HSA’s the owner has.

HSA Transfer unlimited transfers may occur however, the funds movement must be payable to the receiving financial organization. Transfers may only be made to another HSA for the same HSA owner.

Excess Contributions if an HSA owner contributes more than the acceptable limit – this is known as an “excess contribution” and unless the HSA owner corrects the excess in a timely manner, the cost to the HSA owner is an annual six-percent excise tax (IRS Penalty).

HSA Distributions the main purpose of an HSA is to pay for medical expenses on a tax-free basis, specifically IRS “qualified medical expenses”. Most medical insurance premiums are NOT qualified distributions.

HSA Overdrafts (Prohibited Transaction)

• The “Custodian” (bank) is not allowed to lend money to the HSA account so these distributions are considered “disqualified”.
• If the customer overdraws, we will be sending them a letter to notify them of the following:
  • They will be required to include the disqualified distribution in their gross income and it may be subject to a 10% penalty
  • If the account remains in an overdraft status, we may have to close the account.

Mistaken HSA Distributions are amounts that were distributed during the year from an HSA because of a mistake of fact due to reasonable cause. The HSA owner must repay the mistaken distribution to the HSA no later than April 15th following the first year the HSA owner knew or should have known the distribution was a mistake. Proof of “reasonable cause” is the responsibility of the HSA owner.

HSA Reporting

• IRS Form 5498 – Contributions
• IRS Form 1099 – Distributions

*Peoples Bank makes available the Health Savings Account as a custodian only. This information is not intended to be tax or legal advice. This information cannot be used by any taxpayer for avoiding tax penalties that may be imposed on the taxpayer. You should review your particular circumstances with your independent legal and tax advisors, You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. Peoples Bank recommends you contact qualified legal or tax counsel before establishing a HSA. The Internal Revenue Service publishes a list of qualified expenses in Publication 502. Medical and Dental Expenses available at www.irs.gov.