by Teri Lowder, Director of Compliance
Since the inception of Health Savings Accounts (HSAs) in 2004, employers, brokers, and members have struggled with how to manage their company’s Flexible Spending Account (FSA) for healthcare along with the new opportunity to add a HSA compatible high deductible health plan coupled with a HSA – and take advantage of all the tax savings these two vehicles allow.
The IRS came out with some very difficult-to-understand “stacking rules” in 2004, pertaining to how this could be accomplished. This left few options other than terminating the healthcare FSA, or amending the plan to allow a limited purpose or post-deductible FSA. Well, relief is in sight! With the ability to rollover $500 at the end of the plan year on the healthcare FSA, additional guidance – favorable to the HSA- has arrived.
The new FSA $500 carry-over option fits nicely with a HSA. One can move from a full healthcare FSA to a new HSA without violating any IRS rules. Remember, you cannot have a full healthcare FSA and an HSA; the FSA must be limited to dental and vision only, or post-statutory deductible. The guidelines offer the following options:
- An individual whose healthcare FSA has unused amounts may elect to carry over up to $500 of those funds into a limited purpose or post-deductible FSA, if the employer offers that option. These types of accounts are HSA-compatible, and would not interfere with HSA eligibility, allowing an individual to contribute to a HSA as well as to keep the unused FSA funds.
- An employer can structure their benefit plan to automatically carry over up to $500 of unused healthcare FSA funds into a limited purpose or post-deductible FSA for individuals who choose an HSA-eligible high deductible health plan for a small additional fee. This also allows the employee eligibility to contribute to an HSA and to keep the unused FSA funds, with the benefit of requiring no action on the employee’s part.
- An individual with unused healthcare FSA funds may also choose to forfeit those amounts. This will allow an individual with a very small healthcare FSA balance to become HSA-eligible, without any transition to a different type of account.
- Any individual who is covered by a healthcare FSA, as a result of a carry-over of unused amounts from the prior year, and who does not elect to carry over into a limited purpose or post-deductible FSA, is ineligible to contribute to an HSA for the entire plan year, even if the carried over funds are exhausted before the end of the plan year.
Contact us with any questions, or phone 800.617.4729.
By maximizing your 2013 HSA contributions, you can reduce your taxes and increase savings for healthcare or retirement expenses.
You and your employer can contribute in total up to $3,250, if you’re under 55 years of age and have single HSA compatible health coverage, and up to $6,450 if you are under 55 years of age and have family HSA compatible health coverage.
You have until April 15, 2014 to contribute to your HSA account and claim those contributions for tax year 2013.
If you are 55 years old and over and not receiving Medicare benefits, then you may also contribute an additional “catch-up” contribution of $1,000. Your spouse is also entitled to a catch-up contribution if he/she meets the eligibility requirements noted above. For your spouse to make the catch-up contribution, he/she will need to open a spousal HSA account. It’s a quick and easy process and we’d be happy to help. Contact us at 800.617.4729 or email@example.com.
Please note: If you add to your HSA account for the 2013 tax year, you will need to add those contributions to what is listed on your 2013 statement when you prepare your tax return.
There are even greater opportunities to save next year. The IRS approved HSA contribution limits are $3,300 for individual coverage and $6,550 for family coverage in 2014. Individuals age 55 and over may continue to contribute $1,000 more as a “catch up” contribution.
Since 2009, the city of San Francisco has required businesses with locations within the city to provide an option for commuter benefits to their employees. One of the options available is a Transit Flexible Spending Account (FSA).
Effective September 2014, a new law will require employers with 50 or more employees located in the greater Bay Area to provide commuter benefits to their employees. The Bay Area is defined as including all of Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, and Santa Clara counties, as well as the western portion of Solano County (including Fairfield and points west) and the southern portion of Sonoma County (including Windsor and points south).
To meet this new requirement, the Transit Flexible Spending Account is again an option for employers. In addition, the Transit FSA may be not only the most cost effective – but also the easiest to manage – option. Learn more about Sterling’s Transit & Parking Benefits services or contact us today.
You can find more information on the San Francisco Commuter Benefits Ordinance Overview here and more information on the new law here.
UPDATE 4/2/2014: Employers are now required to register for the Bay Area Commuter Benefits Program and can do so here.