Changes to HSA Plans for 2011 Filing and Beyond

Published on April 9, 2012

With tax day creeping around the corner, the IRS released a whole new batch of tax publications for the tax-payer at the beginning of this year. These publications explicitly detail each type of plan, eligibility, as well as assistance with tax preparation. Most years you can expect simple updates to contribution limits, however this year’s Publication 969reveals big changes to the HSA account, Health Savings Account for High-Deductible plans.

The biggest changes to the HSA for 2011 filing are as follows:

• Changes to qualified medical expenses
• Additional tax rate increased to 20%

Gone are the days of the vague definition of “medical expense”, the days where every receipt for aspirin or cough medicine can be swept into that shoebox labeled “Tahiti”. Tightening up their definitions of what is treated as a medical expense, the IRS has indicated that any amounts paid after January 1st, 2011 shall be considered a medical expense only if the drug requires a prescription, is over the counter and you have prescription for it anyway, or is insulin. Further reading on what is considered a qualified medical expense can be found in IRS Publication 502, Medical and Dental Expenses.

In addition to this clarification, the additional tax for an HSA distribution taken for expenses other than qualified medical expenses (meaning distributions taken for any other reason) has increased from 10% to 20% in addition to ordinary income tax.

Though the above may seem like the IRS took all the fun out of an HSA, the good news is that contribution limits have also increased, allowing eligible members of these plans to further fund their accounts. The new contribution limits are as follows:

• For 2011, single member coverage is $3,050 and family coverage is $6,150.
• For 2012, single member coverage increased to $3,100 and family coverage is $6,250.

For complete contribution limits for all plans, please see our contribution limit sheet.

Much like IRAs, HSAs can be self-directed, are subject to IRS Code 4975 for prohibited transactions, and you may contribute for tax-year 2011 until April 17, 2012. Next Generation Trust Services encourages anyone considering opening an HSA to review IRS Publication 969 and to consult their tax advisor to ensure eligibility. Next Generation Trust Services is not responsible for determining plan eligibility, nor may we provide advice.

Would you like to open an HSA? Contact out office today for further information and be sure to take advantage of our contribution promotion!