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The funds in your HSA account may be used tax-free for any qualified medical expenses, including most over the counter drugs. Please refer to www.irs.gov/publications/p502, the IRS Publication 502 for a complete list. Qualified medical expenses must be incurred on or after the date the HSA account was established.
- The funds can also be used to pay for medical insurance premiums, including COBRA, while unemployed or on temporary layoff while collecting unemployment compensation.
- As of age 65, funds can be used for non-eligible medical expenses and the additional 10% tax penalty will not longer apply; however the distributions will be subject to normal income tax.
- If you become disabled and/or enroll in Medicare, the account can be used for other purposes without being taxed as income and without paying the additional 10% penalty.
- In the event of the accountholder's death, the funds in the HSA would belong to the named beneficiary. If no beneficiary was named, the funds will go to the accountholders estate.
- If the beneficiary is the spouse, the HSA is treated as their own account. The spouse will need to complete the application materials in order to transfer the HSA to their name.
- If the spouse chooses not to maintain the HSA, the funds will be distributed to them subject to income tax.
- If the beneficiary is someone other than the spouse, the HSA funds will be distributed to the designated beneficiary(ies) and will be subject to income tax.
- An original death certificate will need to be mailed to eflexgroup.com
- You can generally not use the money to pay for medical insurance premiums, except under specific circumstances, including:
- Any health plan coverage while receiving federal or state unemployment benefits
- COBRA continuation coverage after leaving employment with a company that offers health insurance coverage.
- Qualified long-term care insurance.
- Medicare premiums and out-of-pocket expenses, including deductibles, co-pays, and coinsurance for:
- Part A (hospital and inpatient services)
- Part B (physician and outpatient services)
- Part C (Medicare HMO and PPO plans)
- Part D (prescription drugs)
Will my bank notify me if I've exceeded my allowable contribution amount?
- No, it is your sole responsibility to keep track of the amounts deposited and spent from your account, just like a normal savings or checking account.
Should the HSA account holder keep receipts? YES!
- May need to prove to IRS that distributions from HSA were for medical expenses.
- May be required by insurance company to prove that HDHP deductible was met HDHP.
- Not all medical expense paid out of the HSA have to be charged against the deductible (i.e., dental care, vision care)
What happens if the distribution is not used for qualified medical expenses?
- Amount of distribution is included in income and
- 10% additional tax except when taken after:
- Individual dies or becomes disabled
- Individual is age 65
- Mistaken distributions from an HSA can be returned to the HSA.
- Clear and convincing evidence must be show that the distribution was a mistake of fact
- Must be repaid by April 15 of the year following the year in which the individual knew or should have known the distribution was a mistake
Neither the employer nor the bank is responsible for verifying that the distributions are used to pay for qualified medical expenses. It is the responsibility of the account holder to maintain sufficient records to verify that the distributions from the account were used to pay for qualified medical expenses.
Distribution Options:
You have three methods to access the funds in your HSA account.
Debit Card:
The debit card may be used for payment of qualified medical expenses. To ensure that you receive the proper applicable network discounts, it is recommended that the provider bill the health insurance carrier directly. The debit card uses SIC codes to limit access to only those establishments offering products and services that are considered qualified medical expenses.
Checks:
The checks are purchased through the bank which handles your HSA funds. The checks are used just like any other check; however they are only for use on qualified medical expenses.
Withdrawal Form:
HSA distributions may also be accessed with a Withdrawal Form which can be accessed here. (Coming Soon!)
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