IRS Pub 969 HSA Clarifications Needed

[Raj1]

I am not a frequent user of HSA and the related issues and read IRS Pub 969 reg HSA but could not find clear answers of the following points:

• Does contribution to HSA require “Earned Income”?
• Is there any income level after which HSA contribution is disallowed?
• Is there any income level after which HSA contribution is allowed but “not deductible”?
• An active employee of a major corporation normally has full medical and dental insurance coverage from the employer after paying a nominal share of medical and dental insurance premium.  Such an employee does not need to have a separate HDHP “COVERAGE” and covered by no other coverage EXCEPT “Other Health Coverage”.  Can such an employee still contribute to HAS and claim a tax deduction?
• I know of many major companies referred to above contribute to HSA of its employee/s and show the amount in W-2 Box 12 with W code.  If the employer can contribute to such an employee, why not the employee can make addl contr to max out?
• Is there any $ limit (assuming limited to $4,150 for Single and $8,300 for Family coverage) for an employer to contribute to HSA of an employee before it becomes taxable?
• Tax Free Distribution ONLY for expenses not reimbursed by HDHP? Does it mean the TP needs to have an EoB showing the rejection of the med ins claim?
• Can a TP e.g. 35 Yrs who is unemployed and uninsured contribute to HSA?

[rbynaker · Accepted solution]

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@Raj1 wrote:

I am not a frequent user of HSA and the related issues and read IRS Pub 969 reg HSA but could not find clear answers of the following points:

• Does contribution to HSA require “Earned Income”?  No.
• Is there any income level after which HSA contribution is disallowed? No.
• Is there any income level after which HSA contribution is allowed but “not deductible”? No.
• An active employee of a major corporation normally has full medical and dental insurance coverage from the employer after paying a nominal share of medical and dental insurance premium.  Such an employee does not need to have a separate HDHP “COVERAGE” and covered by no other coverage EXCEPT “Other Health Coverage”.  Can such an employee still contribute to HAS and claim a tax deduction?  You lost me.  The employee must have qualifying HDHP coverage AND must NOT have any non-HDHP coverage for the same month.
• I know of many major companies referred to above contribute to HSA of its employee/s and show the amount in W-2 Box 12 with W code.  If the employer can contribute to such an employee, why not the employee can make addl contr to max out?  Typically the employee will contribute via payroll deduction (cafeteria plan) which also gets Code W treatment.  This gets them out of FICA tax too.  They can contribute outside of payroll up until 4/15 of the following year if they are not at the limit.  The limit is technically a monthly limit multiplied by number of qualifying months but there's a favorable "last month" rule which could give you a full year's contribution if you're covered in December and your coverage continues into the subsequent year for 12 consecutive months.  If they contribute outside of payroll, make sure they properly designate it for the prior year, I have folks send me a screen-shot of the confirmation.  They get an income tax deduction for this, but no FICA tax back.
• Is there any $ limit (assuming limited to $4,150 for Single and $8,300 for Family coverage) for an employer to contribute to HSA of an employee before it becomes taxable?  The total annual limit applies to all contributions to all HSAs of the taxpayer.  It doesn't matter where the money comes from.  The limit might be less than $4,150 if they change coverage mid-year.  See Form 8889, you're counting qualifying months.
• Tax Free Distribution ONLY for expenses not reimbursed by HDHP? Does it mean the TP needs to have an EoB showing the rejection of the med ins claim?  Money-out rules have nothing to do with money-in rules.  You don't have to have an HDHP when taking money out.  It just has to be spent on qualifying expenses.  The check or debit card receipt attached to the medical bill should be fine.
• Can a TP e.g. 35 Yrs who is unemployed and uninsured contribute to HSA?  No.  They have to have a high-deductible health plan.

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Rick

[Raj1]

Rick (rbynaker) Good Morning and Many Sincere Thanks. Have A Nice Day! 

[qbteachmt]

I see this confusion a lot. The IRS specifies the limits for coverage that are considered High Deductible or not. But an employer plan has to be HSA-qualified, as determined by the carrier, when there is to be an HSA offering or provision. A lot of people think, Oh, my plan has a high deductible, so it qualifies. That's not how to judge this.

HSA accounts are never Jointly owned. The funds can be spent on each other and even other people per the IRS medical expense itemization rules, but HSA accounts are per the covered individual. That means a family plan, they would split the HSA limit if they want to. But the catch up amount for age 55 and older must go into the HSA account owned by that person. Am adult child no longer a tax dependent but still covered on the family HSA plan also is eligible for the full Family contribution to their own account.

[BobKamman]

All of which can be found in Pub 969, but good job.