Health Savings Accounts (HSAs)

A Health Savings Account (HSA) is an individually owned account you can use to pay for qualified health expenses for you and your covered dependents. Contributions can only be made while you are covered by a high-deductible medical plan. Unlike traditional tax-advantaged accounts for health expenses, your account is portable even when you change jobs or leave the workforce. Additionally, you have the flexibility once you are age 65 or older to use HSA distributions for non-qualified expenses, and normal taxes would apply. Those individuals under the age of 65; however, would be subject to taxes and a 20% penalty.

Contributions made to your HSA are generally tax-free, and the unused funds generally roll over the end of each year. This reduces your taxable income and, potentially, your tax liability.  Consult your tax advisor to determine how your HSA affects your unique tax circumstances. When you withdraw funds to pay for qualified health expenses, the funds remain tax-free.

Contributions to HSAs can be made by either the employer or the individual, or both. If contributions are made by the individual, it is an "above-the-line" deduction on your income tax, even if you do not itemize your deductions. If contributions are made by the employer, it is not taxable to the employee (excluded from income). Contributions can also be made by others on behalf of an eligible individual and deducted by the individual. All contributions are aggregated. 

To enroll in an HSA, you must meet the following requirements:

• You must be enrolled in a qualified high deductible medical plan on the first day of the month that meets IRS requirements.
• You cannot be covered by another medical plan that is not a high-deductible health plan (e.g., you can’t be a dependent on anyone else’s plan, except for vision or dental coverage).
• You cannot be enrolled in Medicare.
• You may not be claimed as a dependent on another person’s tax return.

A qualified HDHP is a health insurance plan with a minimum deductible for 2023 of $1,500 (self-only coverage) or $3,000 (family coverage). The 2023 plan year annual out-of-pocket maximum (including deductibles and co-pays) cannot exceed $7,500 (self-only coverage) or $15,000 (family coverage). In 2024, the minimum deductible is $1,600 (self-only coverage) and $3,200 (family coverage), and the annual out-of-pocket maximum cannot exceed $8,050 (self) or $16,100 (family).

HDHPs can have first-dollar coverage (no deductible) for preventive care and higher out-of-pocket (co-pays and co-insurance) for non-network services.

You can begin sending contributions to your HSA as soon as your account has been opened. You will know your account has been opened once you receive a welcome letter from our Bank.

The amount you can contribute depends on your age, when you become an eligible individual and when you cease to be an eligible individual. Please refer to the IRS Contribution/Deductible Guidelines for specifics.

You can make a contribution to your HSA the following ways 

• By making a deposit to your HSA through our Bank.
• Through payroll deduction (if your employer offers this option for your HSA, you can request that your employer deduct a set amount from your paycheck).

You can use the funds in your HSA as soon as they are contributed and available. You are 100 percent vested as soon as the funds are deposited and you have total control over the funds. You can only use your HSA funds for eligible expenses that are incurred on or after your account was established. Keep in mind that if your employer also contributes to the account, they can determine their contribution schedule: yearly, monthly, weekly, etc. Please check with your employer to see what their contribution schedule will be.

You can contribute as frequently, or as much, as you wish, provided your total contribution does not exceed the limits specified by the Internal Revenue Service. If you are considered an eligible individual for the entire calendar year and did not change your type of coverage for 2023, the total funds contributed from all sources are limited up to $3,850 for self-only coverage and up to $7,750 for family coverage; in 2024 it will increase to $4,150 for individual and $8,300 for family. In addition, if you're an eligible individual 55 and older, the IRS does allow a catch-up contribution of $1,000. Please refer to the IRS Contribution/Deductible Guidelines sheet for the specific dollar amount you may contribute during the plan year.

You can contact Customer Service to request an excess contribution refund. If you request a refund of the excess funds, there is no penalty as long as the distribution is made before the tax filing deadline, generally April 15. Earnings on the excess amount will be taxable.

Excess contributions are subject to a 6 percent excise tax.

You are eligible to receive tax-free reimbursement for qualified health expenses not covered by your insurance as defined by Section 213(d) of the Tax Code. A list of these expenses is explained in “Publication 502, Medical and Dental Expenses” and available on the IRS Web site, www.irs.gov. HSA distributions used for any purpose other than the qualified medical expenses listed will be taxable, and the appropriate tax rules will apply.

Any funds you withdraw from your HSA for non-qualified expenses will be taxed at your income tax rate plus a penalty equal to 20% of the amount paid.

You must report distributions for ineligible expenses. Consult your tax advisor for specifics.

Save all receipts and records of withdrawals for tax reporting to the IRS. If you use your funds for non-health related expenses, you must report those withdrawals accordingly. You – not your employer – are responsible for maintaining all records associated with your HSA.

Our Bank will be the holder (custodian) of your HSA funds. We are a national bank, and our accounts are FDIC-insured.

Yes, you will earn tax-free interest on your HSA funds. The exact interest amount, and any updates to this amount, will be provided to you directly from our Bank.

In addition to receiving a monthly statement for your HSA (online or in the mail), you may view your account activity online through our Internet Banking service. To enroll, please select “Internet Banking” from our login menu and follow the instructions for new users. Once enrolled, you may click on the Online Statements tab to opt into free, secure paperless statements. Please note there is a $3 fee to continue receiving paper statements for HSA accounts opened after July 1, 2015.

You can use your Health Savings Account Visa® debit card at a doctor’s office, pharmacy or health care facility. Or, write a check to pay for or reimburse yourself for qualified expenses.

Any fees are determined by our Bank and provided to you in the HSA Custodial and Deposit Agreement. You will receive periodic communications from us as these fees are updated.

You own the HSA, so the monies are yours to keep. If you retire and are insured by Medicare, change to a non HSA-qualified plan, or go to another employer that doesn’t offer a qualified plan, you can still keep your account and use your HSA to pay for out-of-pocket qualified medical expenses. However, you won’t be able to continue to make contributions to your HSA.

A “rollover” is a tax-free distribution paid to the taxpayer from one HSA that must be paid into another HSA. The contribution to the second HSA is called a rollover contribution; these contributions are not included in taxpayers' income, are not deductible, and do not reduce taxpayers' annual contribution limit. The taxpayer must rollover the amount within 60 days after the date of receipt, and may only make one rollover contribution to an HSA during a one-year period. If you take a distribution and do not roll it over within 60 days to another qualifying HSA, the funds are taxable and likely subject to an additional 20 percent penalty. 

An HSA-to-HSA transfer moves the funds directly from one institution to another and is least likely to trigger penalties or taxes. An HSA-to-HSA transfer is also exempt from the one rollover per one-year period rule.

Generally, when you reach age 55 up to when you are enrolled in Medicare, you can make additional contributions to your HSA to maximize your tax advantages and set aside the money you need. HSAs are individual accounts, therefore, catch-up contributions for eligible spouses cannot be combined into one joint account. Please refer to the IRS Contribution/Deductible Guidelines sheet for exact dollar amounts and additional information.

We can accommodate a one-time contribution or several contributions over time. For more specifics on eligibility, please refer to IRS guidelines or a tax advisor.

If an individual is age 65 or older, regardless of whether the individual has been enrolled in Medicare, there is no penalty to withdraw funds from the HSA. As always, normal income taxes will apply if the distribution is used for non-qualified medical expenses, as determined by the IRS.

Yes. HSA funds can be removed tax-free for eligible medical expenses for a tax dependent at any   time, regardless of whether either person is enrolled in an HDHP.

You should choose a beneficiary when setting up your account. If you designate a spouse as the beneficiary the HSA will be treated as your spouse’s upon your death. If your spouse is not the designated beneficiary, then the account stops being an HSA and is taxable to the beneficiary.

For more information, contact the Upstate Agency Employee Benefits Division at (518) 793-2885 or any of our Bank locations.

Please note: If you are no longer covered by a high-deductible medical plan, you cannot continue to contribute to your HSA. To qualify for a Health Savings Account, you must be participating in a qualified High Deductible Health Plan (HDHP). Other limitations may apply. Check with your insurance agent to confirm eligibility. This information is not intended to provide legal or tax advice. For specific guidance to your personal situation and the potential tax benefits or liabilities, you should consult a tax advisor.

Additional HSA cards for family members are issued in the accountholder’s name due to HSA requirements. Your family member can still use this card for eligible expenses.