Q&A on BMS LLC Health Savings Accounts (HSAs)
What is a Health Savings Account?
A Health Savings Account (HSA) is a tax deferred account created to allow the account holder covered under a qualified High-Deductible Health Plan (HDHP), to use pre-taxed money toward qualified medical expenses (section 213d).
What is the BMS LLC HSA?
The BMS LLC HSA is similar to a personal savings/checking account, with most of the features of a traditional checking account. The money is used for qualified medical expenses under the IRS code (section 213d) for expenses you incurred under your HDHP.
Who is eligible to contribute to an HSA?
Participants must be enrolled in a qualified High Deductible Health Plan (HDHP), regardless of whether or not the insurance is provided to the participant by an employer or if purchased as an individual insurance policy. In order to be eligible to contribute to the HSA account, participants cannot be covered by any other health plan that is not an HDHP (i.e. limitations include, but are not limited to the following; participants cannot be covered by a spouse's insurance that is not a qualified HDHP, cannot be enrolled under Medicare, cannot participate in a Flexible Spending Account and cannot be claimed as a dependent on another person's tax return.)
What is a Qualified High Deductible Health Plan (HDHP)?
A 2011 HDHP is an insurance plan that has a minimum deductible of $1,200 annually for individual coverage ($2,400 minimum for family coverage). Plans with co-pays are ineligible. Maximum annual out-of-pocket cannot exceed $5,800- individual/ $11,600 family. (Participants will want to verify with the insurance provider and/ or with the employer to see if the insurance plan qualifies for contributions to an HSA.) IRS Regulations are subject to change each calendar year.
How much can employees contribute (deposit) into an HSA?
Annual contributions that are permitted to be made into an HSA account are limited to the federal maximum (indexed annually, for 2011, the maximum is $3,050 for individual and $6,150 for family policies. Individuals that will be at least 55 years of age by the end of a tax year may also be eligible to make Catch Up contributions into the HSA, above the maximum. (In 2011, $1,000 will be the catch-up limit maximum.)
Do employer contributions into an HSA account impact what I am allowed to contribute in 2011?
Yes. If employee's insurance plan deductible is $1,200/$2,400, then the employee is allowed to contribute up to $3,050/$6,150 into their HSA account on an annual basis. For example, f the employer contributes $200 into a single employee's HSA account, then the employee would only be permitted to contribute an additional $2,850 to their HSA account. Employer contributions are optional and we encourage you to check with your Employer for confirmation of the procedure for Employer HSA Contributions if applicable.
How is the money moved into an HSA Account on a pre-taxed basis?
The employer will set up pre-taxed payroll deductions and forward them to BMS LLC for deposit in the employee's bank Account. The money will be available within approximately 3-5 business days from the payroll deduction date. If employer contributions are included as well, this will be provided to BMS LLC together as one contribution.
What is a Qualified Medical Expense?
Qualified medical expenses are defined by the IRS under the Section 213(d) code. Using funds from an HSA for non-qualified medical expenses can result in IRS penalties. For further information one can also visit the IRS website. http://www.irs.gov/publications/p502/index.html. BE CAUTIOUS! Click here for a list of Qualified Expenses to be used with your Health Savings Account.
How do employees pay for qualified medical expenses out of an HSA?
It is recommended that they use the HSA Debit Card to pay for all of their qualified medical expenses, whenever possible. You will find that most service providers accept Debit Cards. Transaction descriptions should show on the employees account statement or receipt. You also have access to ordering checks from your HSA Custodial Bank if you wish for an additional fee. Ask for more details.
What if the medical provider does not accept a debit card?
Account Holders can pay their provider with another method of payment (cash or another debit card/credit card.) Then they can simply transfer funds from your HSA Account to re-pay themselves for the qualified expenses.
Does the HSA account need to have enough money before they can pay for a qualified medical expense?
Yes, this is a personal HSA account for the employees. So, the funds must be in the account before they can pay for an expense. We encourage you to watch your balances closely prior to using your account for expenses. The HSA provides employees with most of the features of any traditional checking accounts. (See Bank New Business Kit for Details on transactions with the bank. (Fees, Overdrafts, Checks, etc.)
What if funds are not available in the HSA account when they incur a qualified medical expense?
If employees do not have enough money in the HSA account to pay for a qualified medical expense they will need to pay for the expense by some other means. Once contributions are made to the HSA account, they can withdraw the amount that was paid for the expense to reimburse themselves or simply transfer funds from the HSA to any other account to cover for the qualified expense.
When employees make a withdrawal from the HSA account to pay for a qualified medical expense do they have to pay taxes on it?
No, as long as employees use their HSA account only for qualified medical expenses, they should never have to pay taxes on the money. Remember – every dollar you deduct from your payroll and contribute to your HSA is tax free to you if you qualify for the 125 Plan!
Who is responsible for ensuring that employees are only using the HSA account for qualified medical expenses?
How employees use the HSA account is solely between the employee and the IRS. Employees will need to save all invoices, statements and receipts that will support the withdrawals out of the HSA account. HSA usage is subject to IRS audit and individual employees do not have to submit receipts for review by BMS, but must keep them for possible review by the IRS.
What if employees do not use their HSA account for qualified medical expenses?
If employees use the HSA account for expenses other than qualified medical expenses, employees can subject themselves to tax and IRS penalties. Also, inappropriate use of HSA accounts may leave employees without the money to pay for their qualified medical expenses should it be needed.
Do employees have full use of on-line banking?
Yes. Most HSA accounts provide employees with the same access to on-line banking that they give to all of their customers. Many of HSA Custodial Bank have state of the art websites that help you track your expenses for each individual family member (scan your receipts and save as a .pdf to your individual “shoebox” to store receipts for future review!) Plus, you can transfer funds from your personal checking or savings account to your HSA in order to increase your contributions.
What tax forms will employees receive with the HSA account?
Employees will be receiving two annual tax forms from the bank on an annual basis. The 1099-SA will provide a summary of the distributions (withdrawals) out of the HSA and the 5498-SA will provide a summary of the contributions (deposits) that employees have made into the HSA account.
Employees will need to complete Form 8889-SA when they do taxes. This form can be obtained from the IRS website (www.IRS.gov) or from a tax consultant.
What other information is readily available to employees on the HSA account?
The IRS has provided a list of Question and Answers on their website (see below). You can also contact BMS LLC and ask questions of our qualified staff members.
Location of Government HSA websites:
http://www.treas.gov/offices/public-affairs/hsa/
http://www.irs.gov/publications/p969/index.html
Do employees have other investment options available regarding their HSA account balances?
Yes! Most Custodial Banks allow account holders to start investing in mutual funds once they have at least a $2,000 balance in their HSA. The monthly fee is typically $1.50 and is automatically deducted from the HSA Account. Please check with the banking representative at the investment website option for the options once the minimum balance has been fully funded.
Are employees required to have a minimum balance before they have the option of attaching a brokerage account to the HSA account?
Please see Banking Agreements, but typically it is $2,000 or more in balance in your HSA. Remember to maintain a minimum balance in the HSA savings account portion so one can continue to use the account for qualified medical expenses and to avoid any overdrafts if the account holder fails to diversify funds from investments to the savings account portal.
Can a person have both an HSA and a Flexible Spending Account (FSA)?
If a person elects an HSA, they cannot participate in a FSA. They can enroll into a Limited FSA which allows for only dental and vision expenses to be reimbursed. Remember – if you elect to submit claims during the 2 ½ month grace period provided by some employers, you cannot make contributions to your HSA until your FSA balance is zero. Ask for more details.
Employees Really Can Bring Home More Money This Year
With their HSA Program!
Disclaimer - This information s for educational purposes only. Information as presented may vary based on your unique situations. Contracted banking relationships assume no liability regarding the accuracy or application of the materials contained herein.
BMS LLC Affiliated Custodians (contact BMS about working with your Group's HSA Custodian!)
