Does Uncle Sam approve of your HSA?
A health savings account (HSA) can be a great way to set aside tax-free money for health care expenses. But when taxes are involved, the Internal Revenue Service makes the rules.
Participating in one of Purdue’s two 2014 high-deductible medical plans qualifies you for an HSA, but IRS rules may knock you out of eligibility for an HSA or affect the tax status of your account.
Here’s an example: A Purdue employee continues working beyond her 65th birthday in April 2014. She is not yet drawing her Social Security benefits, and she decides to decline Medicare coverage for now. In October 2014, she retires and applies for her Social Security benefits. Following its usual practice, Social Security makes her Medicare coverage retroactive up to six months, so in this case, back to her 65th birthday.
But people on Medicare are not eligible for employer or employee HSA contributions. Suddenly, the contributions she and Purdue made to her HSA between her 65th birthday and October are no longer tax-free. She’ll have to claim the amount of the contributions and pay the appropriate income tax when she does her 2014 taxes. Careful planning is important.
If you are in any of the categories below, take a few minutes to use the Interactive HSA Guide to see if IRS rules affect your eligibility for an HSA.
- Same-sex domestic partners
- Faculty and staff age 64 or older in 2014
- J-1 visa holders
- Faculty and staff with medical insurance coverage outside Purdue
The HSA frequently asked questions on the Benefits website address a variety of eligibility situations, and you can get answers and information at an open enrollment walk-in lab. Assistance is also available from the Human Resources Service Center at 765-494-2222, firstname.lastname@example.org or HR Help.