A Health Savings Account (HSA) is a type of account where money is set aside on a pre-tax basis to pay for qualified medical expenses. It is no surprise that COVID had significant impacts on the tax community. The Coronavirus Aid, Relief and Economic Security Act (CARES) made critical changes to HSAs. Here are some of the continuing COVID changes to HSAs you should be aware of.
To be eligible for an HSA, the IRS provides the following requirements:
- Must be covered under a qualifying high-deductible health plan (HDHP) on the first day of the month
- You have no other health coverage except for what is permitted by the IRS
- You are not enrolled in Medicare, TRICARE or TRICARE for Life
- You cannot be claimed as a dependent of another’s tax return
- You have not received Veterans Affairs (VA) benefits within the past three months, except for preventative care. This exclusion is not applicable if you have a disability rating from the VA.
- You do not have a health care flexible spending account (FSA) or health reimbursement account (HRA).
The CARES act provided a temporary safe harbor for providing coverage for telehealth and other remote care services. Under the act, a high deductible health plan is not required to impose any deductible or require cost-sharing for telehealth or other remote care. Coverage outside of the high deductible plan for these services is also disregarded. These provisions apply to services provided on or after January 1, 2020, for plan years beginning on or before December 31, 2021.
Since January 1, 2020, your HSA can be used to purchase OTC drugs and medications, or medication needed without a doctor’s prescription. Aspirin, pain relievers and allergy medications are now allowed as qualified medical expenses and may be paid from your health savings account. Menstrual care products are also considered a qualified medical expense. As of now, there is not an expiration date on these changes. Since you would not have to file a claim for reimbursement, you could use your debit card as normal, but retain copies of your receipts for tax purposes.
The HSA contribution limits were increased in 2021 by $50 for self-only and $100 for families. The contribution limit (employer & employee) for 2021 is for a self-only plan, $3,600 and family plan $7,200. The contribution limit increases yet again for 2022 self-only to $3,650 and family to $7,300. There is no change with catch-up contributions for 2021 and 2022 meaning, if you are 55 years old or older, you may contribute an additional $1,000.
A health savings account can be a cost-effective method to meet medical needs. If you still have more questions, visit the IRS Publication 969 for more information or as always, contact a Henry+Horne tax professional for assistance.