Health Savings and Benefit Accounts FAQs

To be an eligible individual and qualify for an HSA, you must meet the following requirements. 1) You are covered under a high-deductible health plan (HDHP) on the first day of that month 2) You covered under an HSA qualified High Deductible Health Plan (HDHP) and have no other health coverage except what is permitted under “Other health coverage” 3) You are not enrolled in Medicare 4) You cannot be claimed as a dependent on someone else’s tax return.

An HSA is a special tax-advantaged savings account similar to a traditional Individual Retirement Account (IRA) but designated for medical expenses. An HSA allows you to pay for current eligible healthcare expenses and save for future qualified medical and retiree healthcare expenses on a tax-favored basis.

HSAs provide triple-tax advantages: contributions, investment earnings, and qualified distributions all are exempt from federal income tax, FICA (Social Security and Medicare) tax and state income taxes (for most states).

Unused HSA dollars roll over from year-to-year, making HSAs a convenient and easy way to save and invest for future medical expenses. You own your HSA at all times and can take it with you when you change medical plans, change jobs or retire.

Funds in the account not needed for near-term expenses may be able to be invested, providing the opportunity for funds to grow. Refer to the Consumer Portal to find out your investment options.

To be eligible to set up an HSA and to make contributions, you must be covered by a qualified high-deductible health plan, or HDHP.

1. To be eligible to contribute to an HSA, you must be covered by a qualified HDHP and have no other first dollar coverage (insurance that provides payment for the full loss up to the insured amount with no deductibles).
2. You may use your HSA to help pay for medical expenses covered under a HDHP, as well as for other common qualified medical expenses.
3. Unused HSA funds remain in your account for later, and may be able to be invested in a choice of investment options, providing the opportunity for funds to grow.

HSAs work in conjunction with an HDHP. All the money you (or your employer) deposit into your HSA up to the maximum annual contribution limit is 100% tax-deductible from federal income tax, FICA (Social Security and Medicare) tax, and in most states, state income tax. This makes HSA dollars tax-free. You can use these tax-free dollars to pay for expenses not covered under your HDHP until you have met your deductible.

The insurance company pays covered medical expenses above your deductible, except for any coinsurance; you can pay coinsurance costs with tax-free money from your HSA. In addition, you can use your HSA tax-free dollars to pay for qualified medical expenses not covered by the HDHP, such as dental, vision and alternative medicines.
 
Contributions
Tax-free contributions to your HSA can be made in a variety of ways, including:

1. Pre-tax payroll contributions, if available through your employer.
2. Online transfers — transfer funds directly to your HSA from your linked personal savings or checking account
3. Send a check to First American Bank Health Account Services for deposit into your HSA.
4. Rolling over or making a transfer from an existing IRA (Individual Retirement Account) to an HSA, but only once in your lifetime.

Distributions
Distributions from your HSA are used to pay for qualified medical expenses. This can be done by the following methods:

1. Paying for purchases and medical services using your First American Bank Health Account Services prepaid Mastercard^® debit card.
2. Using online bill pay through your online Consumer Portal.
3. Requesting self-reimbursement through the Consumer Portal when you have already paid out-of-pocket for qualified expenses.
4. Paying with an HSA check (fees may apply).

How It Works
Your HSA allows you to save pre-tax income that you can use to pay for qualified short- and long-term medical expenses. It complements your HDHP, giving you an additional method to save specifically for healthcare costs.

For 2020, the maximum contribution for an eligible individual with self-only coverage is $3,550 and the maximum contribution for an eligible individual with family coverage is $7,100. Individuals who are eligible individuals on the first day of the last month of the taxable year (December for most taxpayers) are allowed the full annual contribution (plus catch up contribution, if 55 or older by year end), regardless of the number of months the individual was an eligible individual in the year.

• HSA accountholders can choose to save up to $3,550 for an individual and $7,100 for a family (HSA holders 55 and older get to save an extra $1,000 - and these contributions are 100% tax deductible from gross income.
• Minimum annual deductibles are $1,400 for self-only coverage or $2,800 for family coverage.

Annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) cannot exceed $6,900 for self-only coverage and $13,800 for family coverage.

You can invest a portion of your HSA in a variety of different mutual funds. These mutual funds may provide higher yields than you would otherwise earn if your funds were left solely in your HSA. The HSA is composed of two parts: A checking portion – This is an interest bearing account. You can make deposits, and use your debit card to pay any qualified medical expenses. The checking portion is an FDIC insured deposit account. The investment portion gives you the ability to invest in a variety of nationally recognized mutual funds. Savings held in the investment portion are not insured by the FDIC, not bank guaranteed and may lose value.

Please refer to the Consumer Portal for a listing of investments available to you along with their return rate. Via Consumer Portal, you may choose which mutual funds you wish to purchase and sell. You may use Consumer Portal to review your investments as well as update the percentage allocated to each mutual fund you have chosen. 

At age 65 and older, your funds continue to be available without federal taxes or state tax (for most states) for qualified medical expenses; for instance, you may use your HSA to pay certain insurance premiums, such as Medicare Parts A and B, Medicare HMO, or your share of retiree medical coverage offered by a former employer. Funds cannot be used tax-free to purchase Medigap or Medicare supplemental policies.

If you use your funds for qualified medical expenses, the distributions from your account remain tax-free. If you use the monies for non-qualified expenses, the distribution becomes taxable, but exempt from the 20 percent penalty. With enrollment in Medicare, you are no longer eligible to contribute to your HSA. If you reach age 65 or become disabled, you may still contribute to your HSA if you have not enrolled in Medicare.
 

A Healthcare Flexible Spending Account (FSA) is a pre-tax benefit account that you can use to pay for eligible medical, dental, and vision care expenses that aren’t covered by your health insurance plan. FSA accounts are exempt from federal taxes, Social Security (FICA) taxes and, in most cases, state income taxes. The money in an FSA can be used for eligible health and/or dependent care expenses that are incurred while you are participating in the plan.

• Healthcare FSA: Covers medical, prescription, dental and vision expenses
• Dependent Care FSA: Covers dependent care expenses including daycare, nursery school and day camp for children (up to the age of 13), and services for adult dependents who cannot care for themselves
• Limited Health Care FSA: Covers dental and vision expenses only (for compliance with a Health Savings Account)

Your FSA becomes effective on the date you enroll. Unlike other plans, an FSA does not start on your hire date. Contributions to your account begin as soon as administratively possible after you enroll.

The FSA Grace Period (if applicable per your plan design) provides you an additional 2 ½ months after the end of the plan year to spend down money that is left in your FSA healthcare account. This means that you have until March 15, 2021 to incur claims against your 2020 FSA. This extension of time to incur expenses reduces the chance for any forfeitures, as every 12 month plan year is, in essence, 14 ½ months.

Only those who have FSA coverage through December 31, 2020 can continue to incur claims against the 2020 plan year for services provided through March 15, 2021.

All FSA claims for services provided January 1, 2020 through March 15, 2021 will automatically be applied and processed from the 2020 plan year first if filed by the claims filing deadline for that plan year. If your claim exceeds the available funds from the 2020 plan year, any excess will be automatically applied to the 2021 plan year.

For FSAs with Rollover, on October 31, 2013, the U.S. Department of Treasury changed the policy on remaining funds in FSA’s. You are now able to roll over remaining funds into your next plan year up to $500.00. This rollover means enrollment in an FSA is much less risky. This gives you more flexibility to spend your FSA money when you need it. You can use it for necessary out-of-pocket healthcare expenses, rather than feeling pressured to engage in last minute and potentially unnecessary spending at the end of the year.

Generally, contributions you make to your FSA are not subject to federal or social security taxes. In most instances, there are no state taxes taken out either. The amount you may save depends upon:

• The amount you put into your FSA
• The tax percentage you would normally pay on that money (tax bracket)

Let's say you want $2,000 taken out of your paycheck this year to put into your FSA. The money you direct to your FSA is taken out of your check before taxes are taken out. That reduces your taxable income by $2,000.

Let's say you normally pay 30 percent in federal, social security and state taxes on your income. In this example, you would enjoy a tax savings of 30% of the $2,000. In other words, you could get a $600 tax savings on the $2,000 you directed to your FSA.

QTA accounts allow employees to allocate pre-tax dollars to pay for eligible work-related transit and parking expenses, governed by IRC Section 132. Consumers can have both a parking account and a transit account, each account is separate, and funds cannot be transferred from one to the other. These pre-tax dollars will continue to rollover month to month, year to year, as long as you’re still with your employer.

For 2020, you can set aside up to $270 per month on transit expenses and up to $270 per month on parking expenses. Under IRS regulations, total contributions (consumer and employer) for a transit or parking plan cannot exceed the pretax monthly contribution limit.

• Parking: Expenses for parking at or near your work location or at or near a location from which you commute using mass transit.
• Transit: Expenses include public transportation such as train, bus, monorail, streetcar, subway, ferry. This also includes services such as UberPool and Lyft Shared. Vanpool expenses are eligible, but the highway vehicle must seat at least six adults, excluding the driver.

Funds are available as they are contributed to your account each payroll cycle. If you are placing a Smart Commute order, then your ordered funds will be available on your transit authority smart card by the first of the month you selected.

First American Bank makes it easy for your employees to pay for eligible transit and parking services with our Health Account Services prepaid debit card. Employees will also have access to manage their commuter benefits with the First American Bank Health Account Services Consumer Portal.

If available for your region, you can also place a Smart Commute order to load your transit authority smart card from the Consumer Portal. See the Smart Commute section for more information. When you use the prepaid debit card or Smart Commute, you don’t need to submit receipts to substantiate your expenses.

For parking and vanpool expenses, you can pay out-of-pocket and request reimbursement for your expenses on the Consumer Portal or mobile app. Reimbursement can be issued via direct deposit to your bank account or check. Mass transit expenses are not eligible for reimbursement per the IRS, when an eligible method such as the benefit debit card or Smart Commute are available.