1. Don Priebe - January 2011Health Savings Accounts1 Not covered in Pub 4491 (text book) Publication 969 (Health Savings Accounts and Other Tax-Favored Health Plans) Mandatory training and certification module available on Link and Learn website (http://www.irs.gov/app/vita/)http://www.irs.gov/app/vita/ These slides on www.w2in.com/aarp

2. Don Priebe - January 2011Health Savings Accounts2 Do not include... Archer Medical Savings Accounts Medicare Advantage MSAs Health Reimbursement Arrangements These are Out-of-Scope

3. Don Priebe - January 2011Health Savings Accounts3 HSA Basis Concepts Taxpayer has a high-deductible medical insurance policy to pay for catastrophic expenses Taxpayer also has a special savings account (HSA) used to pay for ordinary medical expenses Taxpayer and/or employer make contributions to this HSA

4. Don Priebe - January 2011Health Savings Accounts4 HSA Benefits Contributions to HSA account are deductible if paid by taxpayer; excluded from income if paid by employer Effectively lets you deduct all medical expenses without Sch A or 7.5% floor Earnings of HSA are tax free HSA is yours; not tied to your employer

5. Don Priebe - January 2011Health Savings Accounts5 HSA Restrictions Require hi-deductible insurance to qualify to contribute to a HSA Amount of contributions is limited Types of medical expenses limited Deductible limits are limited Contributions and distributions require reporting on 1040

6. Don Priebe - January 2011Health Savings Accounts6 HSA limits for 2010 Individual policyFamily Policy Maximum Contribution$3,050$6,150 Catch-up Contribution (>=55) $1,000 Minimum deductible$1,200$2,400 Maximum deductible or out-of-pocket $5,950$11,900

7. Don Priebe - January 2011Health Savings Accounts7 Example – contribution made by employer Contribution made by employer is shown in box 12 as code W Contribution is carried to form 8889

8. Don Priebe - January 2011Health Savings Accounts8 Example – contribution made directly by employee Contribution made by employee is shown on form 5498-SA Contribution is manually entered on form 8889, line 2

9. Don Priebe - January 2011Health Savings Accounts9 Total contributions analyzed on Form 8889 (note this is a 2009 form)

10. Don Priebe - January 2011Health Savings Accounts10 HSA deduction taken as adjustment to income Direct contributions to a HSA are adjustments to income Employer contributions to a HSA were excluded from the W2

11. Don Priebe - January 2011Health Savings Accounts11 Distributions from a HSA Distributions from a HSA are shown on a 1099-SA Amount is entered on form 8889, line 14a

12. Don Priebe - January 2011Health Savings Accounts12 Example – qualified distributions Joe used his HSA debit card to pay for some dentist bills and OTC drugs at the drugstore. All of the $408 was used for qualified purchases He also paid $57 cash for some Rxs Enter $465 on form 8889 line 15

13. Don Priebe - January 2011Health Savings Accounts13 Form 8889 Qualified Distributions None of the distributions are taxable

14. Don Priebe - January 2011Health Savings Accounts14 Example non–qualified distributions Joe used his HSA debit card to pay for some OTC drugs and other things at the drugstore. He admits that $156 of the $408 was used to buy the newspaper every Sunday. The remaining $252 was for qualified purchases He also paid $57 cash for some Rxs Enter $309 on form 8889 line 15

15. Don Priebe - January 2011Health Savings Accounts15 Form 8889 with non-qualified Distributions Form shows taxable income and penalty

16. Don Priebe - January 2011Health Savings Accounts16 Excess distribution is taxable Excess distribution carries to 1040 line 21 automatically You must manually add type caption

17. Don Priebe - January 2011Health Savings Accounts17 Penalty is shown as other taxes Carries to 1040 line 59 automatically

18. Don Priebe - January 2011Health Savings Accounts18 What happens if I contribute more than I use? Any excess of contributions over disbursements remains in your HSA and rolls over to the next year Any earnings also accumulate in your HSA There is no time limit for using the money in the HSA

19. Don Priebe - January 2011Health Savings Accounts19 What happens if I no longer qualify for a HSA? You no longer qualify to make contributions to a HSA if you dont have a high deductible plan Employer offers regular health insurance Qualify for Medicare You use the remainder of your HSA funds for qualified purchases – no time limit

20. Don Priebe - January 2011Health Savings Accounts20 What happens if I die? Spouse inherits – converts to his HSA Someone else inherits – taxable income

21. Don Priebe - January 2011Health Savings Accounts21 How does all this tie in to the new Affordable Care Act No effect in 2010 See http://www.healthcare.gov/http://www.healthcare.gov/ Remember – You must be specifically trained and certified in Health Savings Accounts to do these returns