{"id":8604,"date":"2024-11-26T20:14:00","date_gmt":"2024-11-26T20:14:00","guid":{"rendered":"https:\/\/finderica.com\/how-health-savings-account-contributions-distributions-work\/"},"modified":"2024-11-26T20:14:00","modified_gmt":"2024-11-26T20:14:00","slug":"how-health-savings-account-contributions-distributions-work","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=8604","title":{"rendered":"How Health Savings Account Contributions & Distributions Work"},"content":{"rendered":"
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In the second of two columns discussing health savings accounts (HSAs)<\/a>, this column discusses contributions to and distributions from HSAs. Federal employees and retirees have access to HSAs through the Federal Employees Health Benefits (FEHB) program.<\/p>\n

For federal employees and retirees who are enrolled in the FEHB program, the federal government pays on average 72 to 75 percent of FEHB premiums while employees and retirees pay the other 25 to 28 percent of the FEHB premiums. Those employees and retirees who are enrolled in FEHB high deductible health plans (HDHPs) associated with HSAs have a portion of the federal government\u2019s FEHB premium contribution automatically deposited into the employee\u2019s HSA.<\/p>\n

SEE ALSO:<\/strong><\/em><\/p>\n

This is called the FEHB program HSA \u201cpremium pass-through.\u201d Two FEHB plans (Aetna and GEHA) HSA \u201cpremium pass-through\u201d amounts are summarized for 2024 in the following table:<\/p>\n

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For example only<\/figcaption><\/figure>\n

The maximum that can be contributed to an employee\u2019s or a retiree\u2019s HSA is the combination of automatic HDHP \u201c premium pass-through\u201d and the employee\u2019s or retiree\u2019s voluntary contributions to their HSA accounts. The combined HDHP premium \u201cpass-through\u201d and the employee\u2019s or retiree\u2019s voluntary HSA contributions cannot exceed the maximum annual contribution amount set by the IRS. For tax year 2024, the maximum total contribution is $4,150 for self only coverage and $8,300 for self plus one and self and family coverages. HSA owners aged 55 and older during 2024 can contribute an additional $1,000 to their HSAs. For 2025, the maximum total contribution is $4,300 for self only coverage and $8,550 for self plus one and self and family coverages. Those HSA owners aged 55 and older during 2025 can contribute an additional $1,000 to their HSAs.<\/p>\n

The following examples illustrate how federal employees get tax savings by making a voluntary contribution to their HSA:<\/strong><\/p>\n

Example 1.<\/strong> Stuart, age 56, is a single federal employee who is enrolled in the Aetna HDHP self only coverage during 2024. His monthly FEHB premium is $272.61 or $3,261 per year. From the table above, $66.67 per month of Stuart\u2019s monthly GEHA premium or $800 per year, comes from both Stuart\u2019s and his agency FEHB contributions and contributed to Stuart\u2019s HSA. Stuart\u2019s contribution limit to his HSA for 2024 is $5,150 ($4,150 for a single individual plus $1,000 since Stuart is over age 55). Stuart can contribute an additional $5,150 less $800 or $4,350 to his HSA for 2024. A $4,350 contribution to his HSA will reduce Stuart\u2019s taxable income for 2024 by $4,350. If Stuart is in a 22 percent federal marginal tax bracket, then that means Stuart saves .22 times $4,350, or $957, in federal income taxes during 2024. Stuart has until April 15, 2025 (the 2024 federal income tax filing deadline) to make his voluntary $4,350 contribution to his HSA for tax year 2024.<\/p>\n

Example 2.<\/strong> Francine, age 48, is a married Federal employee who is enrolled in GEHA HDHP self plus one (covering herself and her spouse) during 2024. Her monthly FEHB premium is $372.78 or $4,473.36 per year. From the table above, $166.66 per month or $2,000 per year of the FEHB premiums is the \u201cpremium pass-through \u201dcomes from Francine\u2019s agency and contributed to Francine\u2019s HSA. Francine\u2019s contributions limit to her HSA during 2024 is $8,300. Francine is eligible to voluntarily contribute an additional $8,300 less $2,000, or $6,300, to her HSA for 2024. If Francine is in a 24 percent federal marginal tax bracket during 2024, then she will save $1,512 (.24 times $8,300) by contributing an additional $6,300 to her HSA. Francine has until April 15, 2025 (the 2024 federal income tax filing deadline) to make her voluntary $6,300 contribution to her HSA for tax year 2024.<\/p>\n

Returning to example 1, Stuart voluntarily contributed $3,700 to his HSA between January 1 and July 31, 2024. The HSA earned $200 in interest during 2024. Stuart withdrew $1,000 from his HSA to pay qualifying medical expenses during 2024. Stuart can deduct on his 2024 federal income tax return (as an adjustment to income) the $4,350 voluntary contribution he made to his HSA. He does not pay tax on the $200 of interest he earned in his HSA during 2024. Finally, he does not pay tax on the $1,000 he withdrew from HSA during 2024 to pay qualifying medical expenses he incurred during 2024.<\/p>\n

Reporting HSA Contributions on Federal Income Tax Return<\/h2>\n

Contributions made to a federal employee\u2019s HSA by the employee\u2019s agency are not included in the employee\u2019s income. The only contributions that an employee reports as an adjustment to income are the employee\u2019s voluntary contributions, or some other individual on behalf of the employees, separately to the HSA.<\/p>\n

All employee contributions to an HSA are reported as an \u201cadjustment to income\u201d item on IRS Form 1040 Schedule 1. HSA custodians issue IRS Form 5498-SA showing the amount of the employee contributions and the HSA value of December 31. The federal government\u2019s contribution to the employee\u2019s HSA is shown on Form W-2, Box 12 with a Code \u201cW\u201d.<\/p>\n

Similar to an IRA owner, an HSA owner has until April 15 to make an HSA contribution for the previous (calendar) year. If the individual makes his or her HSA contribution between January 1 and April 15 of the following year, he or she must indicate that the contribution is to be applied to the prior year. Otherwise, the contribution will be automatically applied to the current year.<\/p>\n

Once during an individual\u2019s lifetime, the individual may fund an HSA with a tax-free direct rollover from a traditional IRA, referred to as a \u201cqualified HSA funding distribution.\u201d The rollover amount is limited to the maximum annual HSA contribution (including federal employee and agency automatic contributions). For example, the maximum rollover amount for 2024 for self only coverage is $4,150 and $8,300 for self and family\/self plus one coverage. Note that the traditional IRA direct rollover is not deductible as an adjustment to income on IRS Form 1040 Schedule 1. In spite of not being tax deductible, the direct rollover may be beneficial if an HSA owner does not have the cash to contribute to the HSA.<\/p>\n

Excess Contributions<\/h2>\n

An individual will have excess contributions if the contributions to the individual\u2019s HSA for the year are greater than the annual limit allowed for that year. Excess contributions are not deductible. But the IRS is somewhat lenient when it comes to correcting excess HSA contributions. If the excess contributions and any earnings associated with the contribution are withdrawn before the due date of the individual\u2019s tax return, including extensions, then no penalty applies. However, the earnings on the excess contributions should be included in HSA owner\u2019s income in the year in which the distribution is received.<\/p>\n

If the contributions are withdrawn after the due date of individual HSA owner\u2019s tax return due date including extensions, then an annual 6 percent excise tax\/penalty tax is imposed. IRS Form 5329 is used to compute the penalty and included with the annual Form 1040 filing.<\/p>\n

Transfers of HSAs Pursuant to Divorce or Death<\/h2>\n

If a married couple gets divorced and an HSA is transferred to a spouse or former spouse pursuant to a divorce or separation agreement, then the transfer is not taxable. The recipient spouse becomes the beneficiary of the transferred HSA.<\/p>\n

When an HSA owner dies and the surviving spouse is the designated beneficiary, then the surviving spouse is treated as the account beneficiary once the account is transferred. If the named beneficiary of an HSA is someone other than the owner\u2019s spouse (such as a child), then the account will cease to be considered an HSA and is taxable to the beneficiary in the year of death. To avoid paying taxes on the HSA balance, the heirs can use the HSA account balance to pay for the decedent\u2019s eligible medical expenses that were not previously reimbursed by the deceased\u2019s HSA.<\/p>\n

In summary, HSAs are a tax advantaged way for federal employees and retirees to pay their qualified medical expenses. This is especially important with the enactment of the Tax Cuts and Jobs Act of 2017, resulting in the majority of individual taxpayers no longer itemizing their deductions (filing Schedule A) and instead taking the standard deduction on their federal income tax returns. Even for those individuals who will itemize on their federal income tax returns, deductible medical expenses are only those that exceed 7.5 percent of adjusted gross income. Finally, HSAs are also a tax-advantaged way to save money in order to pay current future (including during retirement) medical expenses, including long term care expenses and Medicare Part B and Medicare Part D premiums.<\/p>\n

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Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

In the second of two columns discussing health savings accounts (HSAs), this column discusses contributions to and distributions from HSAs. Federal employees and retirees have access to HSAs through the Federal Employees Health Benefits (FEHB) program. For federal employees and retirees who are enrolled in the FEHB program, the federal government pays on average 72<\/p>\n","protected":false},"author":2,"featured_media":8539,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[348],"tags":[328,1931,2647,326,327,360],"class_list":{"0":"post-8604","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-retirement","8":"tag-account","9":"tag-contributions","10":"tag-distributions","11":"tag-health","12":"tag-savings","13":"tag-work"},"_links":{"self":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/8604","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=8604"}],"version-history":[{"count":0,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/8604\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/media\/8539"}],"wp:attachment":[{"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8604"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8604"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8604"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}