A Health Savings Account (HSA) can be set up with a bank, insurance company, or a trustee authorized to set up Individual Retirement Arrangements (IRAs) or Archer Medical Savings Accounts (MSAs). An HSA can be set up separately from your health care provider, and in this sense provides you with an additional source of funds to cover medical expenses.
Benefits of an HSA
There are tax and other benefits of having an HSA:
You can deduct the contribution you or someone else makes on your behalf, without having to itemize deductions on your tax return. You need to file Form 8889, Health Savings Accounts (HSAs) and can take the deduction as an adjustment to income on Form 1040.
Contributions that your employer makes to the account (such as through a cafeteria plan) are excluded from your taxable income.
The contributions remain in your account and earnings on the balance accumulate tax-free.
Withdrawals, or distributions from your HSA are tax-free if you use them to pay qualified medical expenses.
An HSA is not tied to your employer, so you can take it with you if your change jobs or stop working.
Who Qualifies for an HSA?
In order to qualify for an HSA, you must meet the following requirements:
You must have a high deductible health plan (defined below).
You cannot have other health care coverage, except for certain plans that provide specific benefits (described below).
You cannot be enrolled in Medicare.
If you can be claimed as a dependent by someone else, even if that person does not actually claim the exemption, you cannot open an HSA.
Spouses who are both eligible must open separate HSAs. You cannot have a joint HSA.