My employer offered a high deductible health insurance plan that came with an HSA option starting this fiscal year now. There were a lot of questions, but for some they said it was outside of the scope of discussion. After checking some of the documentation and googling some sites, I’ve put together some info, but want to confirm with others who also have the HSA plan that my interpretation is not inaccurate.
The biggest issue/qn for me is regarding my 25-year old who’s a student. Is my understanding of this accurate: while she’s covered under my medical insurance (till age 26), expenses incurred by her prior to the $4,000 family deductible being met cannot be paid out of my tax-deductible HSA contributions even though I’ll be the one paying it for her? Rather she’s eligible to start and fund her own HSA account, but since she has very little income, there is no benefit in doing so.
My understanding FWIW (I’m not a HSA expert) is that you can pay all qualified medical expenses from your HSA account. In general, qualified medical expenses are those expenses that meet the medical and dental deduction rules established by the IRS and which are incurred by you, your spouse, your dependents, or someone you could claim as a dependent but for certain exceptions (assuming such people are under your plan). My D is a dependent student covered under my plan and I pay all of her qualified expenses from my HSA account.
I don’t think D1, currently aged 25 qualifies as a dependent even as a full time student, that’s why I was thinking we can’t use our HSA for her expenses. The insurance company rep who gave the presentation wouldn’t commit and told me to contact someone who’s a legal specialist on HSA.
which suggests this is the rule, once you have established that the expense is a “qualified medical expense”:
And there is this language on this insurer’s website - which confirms that the definition of “dependent” for HSA is derived from one’s ability to claim that individual on one’s tax return:
I hope this helps. I learned something new myself.
^ What Attorney Mom said. We were advised just this year that both Goskids, who are on family plan, but are not our dependents, cannot use our HSA dollars.
One of those annoying hiccups between the ACA and the IRS.
They have each established their own HSA accounts to pay for their medical items to deal with this…they liked it better when we were ignorant of the law…
and I would also add…HR/Benefits was totally clueless on this issue…our accountant informed us, albeit she wasn’t aware of the ACA/IRS discrepancy for the first few years we put kids’ expenses thru our HSA. I’m assuming it’s because most kids on the family plan & under 26 are still being claimed as dependents??
Is this the same for flexible spending accounts used to pay co-pays and other costs under the plans that aren’t high deductible? DS will stay under our insurance but next year won’t be a tax dependent so I’m wondering of he’ll need to set up his own flexible spending account.
I’m glad I learned about this now. My D still meets the definition of a dependent, but it’s likely I’ll fall into this same crevice when she turns 24. Yikes!
I’m wondering how that works for those kids(students) under 24 that have high paying co-ops and end up paying for their own tuition…I guess I’m wondering when the red flag goes up.
For us FSA was different in that money you put into it had to be used by the end of the year or you lost it. Again, this could just have been our plan, but I suspect not. Also when I signed up for x dollars/year for the FSA, I had that amount available on day 1. Our HSA plan is more like a traditional bank account where what’s available is based on how much has been put in less how much is used. Any balance left at the end of the year stays rolls over and can be used for future qualified expenses. If I get hit by a truck, the money goes to NOK similar to an IRA.
So you have to know in January if your child will be claimed as dependent for the current year? My D is scheduled to graduate in 2017, but I doubt we will know post grad plans in January of that year.
Akmom, I looked that up a while back, and from what I could determine, the FSA rules are different (from HSA rules) in that you CAN use FSA funds for an adult child who is on your insurance plan, regardless of whether they are your dependent for tax purposes or not.
Music merit - do you have an HSA? If not, no worries. And even if so, if you couldn’t use HSA funds for your daughter in 2017, they would continue to accumulate and grow tax-free. No use-it-or-lose-it problem with HSAs.
We do have an HSA and she would still be a full time student in the beginning of the year. We would probably proceed with paying her expenses as usual out of the HSA. But later in the year she could get a job and then not be our dependent. Do they make you go back and adjust the funds used for her from the HSA? She could also go to grad school or do some volunteering and continue to be our dependent. We will not know in the beginning of that year. Are we supposed to predict the future?
If you read Publication 969, which contains the rules governing HSAs and FSAs, etc., you will see the following information addressing the use of funds out of an FSA:
I realize that reading IRS Publications does not count among anyone’s thrills, but therein lies the answer.
I am not sure which question you are answering. My question is - what if you do not know in the beginning of the year if they will be claimed as a dependent or not?
