How Does a Health Savings Account Work?

child trying on glasses at eye doctor

A Health Savings Account (HSA) is a smart savings option to keep your family and your finances healthy. It’s designed for people with an HDHP (High Deductible Health Plan) and can be used to pay for prescriptions, co-pays and other qualified medical expenses. An HSA is funded with pre-tax dollars which also helps reduce your tax liability.

How does an HSA work?

Contributions to your HSA can be made by you, your employer or other individuals. However, you can’t exceed the annual limit established by the IRS. The maximum annual contribution limit for 2020 is $3,550 for self-only coverage and $7,100 for family coverage. If you have any left-over funds at the end of the year, the unused funds carry over into the next year so there’s no use-it or lose-it concern.

What medical expenses can be paid with an HSA?

You’re allowed to use your HSA funds for any qualified medical expense not covered by your insurance such as:

  • Annual physicals
  • Prescriptions
  • Health insurance deductibles
  • Dental visits
  • Vision care
  • Chiropractic care

Examples of ineligible expenses include vitamins, elective cosmetic procedures and funeral costs. Consult with a tax advisor or plan administrator if you’re uncertain.

How do you access HSA funds?

Your HSA funds are easily accessed by using an HSA debit card provided when you open your account. Since it’s not a credit card, funds must be available in your HSA account when the transaction is processed.

What records do you need to keep?

Keep every receipt regarding medical expenses. Hold onto HSA account statements, purchase receipts, employer contributions and any other documents showing medical expenses. The IRS can review returns for up to three years, so hang onto these items for that long.

How do you report your HSA activity to the IRS?

You should be provided with the proper tax forms which you’ll need to complete and return with your tax filing each year to report all HSA information to the IRS.

What benefits does a Partner Colorado HSA offer?

If you currently have a high deductible health plan, you can open an HSA with us and receive a free debit card.

  • No minimum deposit required
  • No setup fee
  • No monthly or annual fees
  • Safely pay medical expenses with your Partner Colorado HSA debit card
  • HSA funds insured up to $250,000 by the NCUA
  • Lower your taxable income to the IRS
  • Funds locally managed by Partner Colorado

To open your HSA, give us a call at 303.422.6221 or stop by any branch location. You can also learn more by checking out our HSA Frequently Asked Questions.

 

*Consult with your tax advisor and plan administrator for your specific situation.