IRS Rules for HSA Accounts

Eligibility

In order to contribute to an HSA, you must be covered under a High Deductible Health Plan, as defined by law. You must not have any other private major medical coverage, though you can be covered under workers compensation plans, disability plans, dread disease, dental and vision and long term care insurance and retain eligibility. No one else may be able to claim you as a dependent, and you cannot be enrolled in Medicaid.

In order to qualify for pairing with an an HSA, as of 2010, qualifying HDHPs must have a minimum annual deductible of $1,200 for individuals and $2,400 for family coverage. Also, plan deductibles may not exceed $5,950 for individuals and $11,900 for families. These plans may provide certain preventative care benefits without a deductible.

For tax year 2010, you can contribute a maximum of $3,050 for yourself, or up to $6,150 if you have a family. Special rules apply to married individuals who have two separate family plans. If you have a Medical Savings Account, or MSA, which were the precursors to the HSAs, you can roll the balance into an HSA without tax liability. The rollovers are not subject to annual contribution caps. You must make your contributions by April 15th of the year following the tax year for which you are making your contributions.

Generally, you must make withdrawals only for qualified medical expenses. Withdrawals for this purpose are tax-free. Withdrawals for any other purpose are taxed as income, and the IRS levies an additional 10 percent excise tax. You can make tax-free withdrawals, as long as money remains in the account, to pay qualified medical expenses. This is true even if you are no longer eligible to contribute to an HSA, due to switching to a lower-deductible plan, or if someone else can claim you as a dependent. You can use the HSA to fund qualified medical expenses for yourself, your spouse or anyone you claim as a dependent on your tax return.