How to utilize the HSA Store   

HSAs once employment ends

Several months ago, NueSynergy wrote about what happens to Flexible Spending Accounts (FSAs) when employment ends and what happens to Health Savings Accounts (HSAs) when retirement starts. Now, it’s time to talk about HSAs following the loss of employment. Here is what you need to know.

  • Since HSAs are owned by participants and not employers, HSAs remain available even after employee termination. This means that HSAs can continue to be used for qualified expenses. However, the ability to continue contributing to this account depends on if a participant is enrolled in an HSA Qualified Health Insurance Plan either through an employer or an individual policy.
  • All future salary redirections from HSAs will end.
  • Any admin fees previously covered by employer will be withdrawn directly from HSA on the 1st of each month.
  • Current NueSynergy HSA debit card will be turned off while a new one will automatically be issued at the physical address associated with account.
  • Account and routing numbers associated with HSA will remain the same.

For further information about this topic, read here.

How to utilize the HSA Store   

Can HSAs provide tax-free reimbursement for the same expenses as Health FSAs?

Question: Our company currently offers a general-purpose health FSA. If we switched to an HDHP/HSA, could our employees receive tax-free reimbursements for the same types of expenses from their HSAs?

Answer: Yes, and they might acquire a few additional options. Like health FSAs, HSAs can provide tax-free reimbursement of out-of-pocket expenses for medical care. But HSAs also can reimburse certain expenses that health FSAs cannot. Those differences are highlighted below.

  • Nonmedical Expenses: Unlike health FSAs, HSAs can make distributions at any time and for any purpose, although only distributions for qualified medical expenses are tax-free. Some taxable distributions may also be subject to a 20% excise tax.
  • Insurance Premiums: While HSAs generally cannot reimburse health insurance premiums or coverage contributions on a tax-free basis, there are a few exceptions:
    • Qualified long-term care insurance
    • Any federally required continuation coverage (e.g., under COBRA or USERRA)
    • Health plan coverage while the HSA account holder is receiving unemployment compensation under state or federal law
    • For HSA holders who are age 65 or older, any health insurance other than a Medicare supplemental policy
  • Qualified Long-Term Care: Unlike health FSAs, HSAs can reimburse qualified long-term care services on a tax-free basis.

In addition, HSAs cannot limit the types of expenses that are reimbursable on either a taxable or tax-free basis because they are individual trusts to which account holders must have unrestricted access, subject only to reasonable restrictions on the frequency or minimum amounts of distributions. HSAs are also different in terms of whose expenses they can reimburse tax-free. Health FSAs can provide tax-free reimbursements for the expenses of employees’ children who are under age 27 at the end of the taxable year, regardless of their status as tax dependents. However, HSAs can only provide tax-free payment or reimbursement of the expenses of an HSA account holder’s child if the child qualifies as a dependent. Keep in mind that other requirements (e.g., regarding substantiation of expenses) will also apply and may vary from arrangement to arrangement.

Source: Thomson Reuters

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