HSA eligibility when spouse has non-HDHP family coverage.A married individual who otherwise qualifies as an "eligible individual" can contribute to a health savings account A Health Savings Account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit. (HSA HSA Health Savings Account (US) HSA Human Serum Albumin HSA Human Services Agency (Nevada) HSA Health Services Agency HSA Health and Safety Authority (Ireland) ) if his or her spouse has non-high-deductible (non-HDHP) family coverage that does not cover the individual. Analysis Sec. 223(a) allows a deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. for contributions to an HSA for an "eligible individual." Under Sec. 223 (c) (1) (A), an eligible individual is one who, in addition to other requirements, is covered under an HDHP HDHP High Deductible Health Plan on the first day of the month and is not "covered under any health plan which is not a high deductible health plan A High Deductible Health Plan (HDHP) is a health insurance plan with lower premiums and higher deductibles than a traditional health plan. It is sometimes referred to as a catastrophic health insurance plan. , and which provides coverage for any benefit which is covered under the high deductible health plan." An eligible individual may have certain permitted insurance, and certain disregarded dis·re·gard tr.v. dis·re·gard·ed, dis·re·gard·ing, dis·re·gards 1. To pay no attention or heed to; ignore. 2. To treat without proper respect or attentiveness. n. coverage, in addition to an HDHP. An HDHP is a health plan that satisfies certain minimum annual deductibles and maximum annual out-of-pocket expense requirements under Sec. 223(c)(2)(A). Family coverage is any coverage other than self-only coverage (e.g., an HDHP covering one eligible individual and at least one other individual (whether or not the other individual is an eligible individual)); see Sec. 223(c)(4) and Notice 2004-50, Q&A-12. Sec. 223(b)(5) provides special rules for married individuals. In general, if either spouse has family coverage, both spouses are treated as having only such coverage. Also, if each spouse has family coverage under different health plans, both spouses are treated as having such coverage under the plan with the lowest deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). . However, if a spouse has HDHP family coverage and the other spouse has non-HDHP self-only coverage, the spouse with the HDHP family coverage is an eligible individual and may contribute to an HSA up to the amount of the annual contribution limit. Because the other spouse is covered by a non-HDHP and, thus, is not an eligible individual, the other spouse may not contribute to an HSA (Notice 2004-50, Q&A-31). Example 1: H and Ware a married couple, both age 35. Throughout 2005, H has self-only coverage under an HDHP, as defined in Sec. 223(c)(2), with a $2,000 annual deductible. H has no other health coverage, is not enrolled in Medicare and may not be claimed as a dependent on another taxpayer's return. W has non-HDHP family coverage for W and their two dependents, but H is excluded from W's coverage. H is an eligible individual under Sec. 223(c)(1), even though W has non-HDHP family coverage, because H is not covered not covered Health care adjective Referring to a procedure, test or other health service to which a policy holder or insurance beneficiary is not entitled under the terms of the policy or payment system–eg, Medicare. Cf Covered. under that plan. The special rules for married individuals under Sec. 223(b)(5) do not apply, because W's non-HDHP family coverage does not cover H. Thus, H remains an eligible individual. The contribution limit for an individual eligible for calendar-year 2005, is the lesser of (1) the HDHP annual deductible (minimum of $1,000 for self-only coverage and $2,000 for family coverage) or (2) $2,650 for self-only coverage and $5,250 for family coverage (Rev. Proc. 2004-71, Section 3.22). Thus, H may contribute up to $2,000 to an HSA (lesser of the HDHP deductible for self-only coverage, or $2,650) for 2005. W is not an eligible individual, because she has non-HDHP coverage. Example 2: The facts are the same as in Example 1, except that H has HDHP family coverage for Hand one of H's and W's dependents, with a $5,000 annual deductible. W has non-HDHP family coverage for W and their other dependent. H is excluded from W's coverage. Because the non-HDHP family coverage does not cover H, the special rules in Sec. 223(b)(5) do not affect H's eligibility to make HSA contributions. Thus, H may contribute up to $5,000 to an HSA (the lesser of the family HDHP deductible or $5,250). Example 3: The facts are the same as in Example 1, except that H has HDHP family coverage for H and the two dependents with a $5,000 annual deductible. W is not covered under H's health plan and has no other health coverage. H is an eligible individual and may contribute up to $5,000 to an HSA. Because H's family coverage does not cover W, the Sec. 223(b)(5) special rules do not apply to treat Was having family coverage. W has no health plan coverage and is not eligible to contribute. REV. RUL RUL right upper lobe (of lung). RUL abbr. right upper lobe (of the lung) . 2005-25, IRB IRB See: Industrial Revenue Bond 2005-18 REFLECTIONS: HSAs (Sec. 223) were added by the Medicare Prescription Drug prescription drug Prescription medication Pharmacology An FDA-approved drug which must, by federal law or regulation, be dispensed only pursuant to a prescription–eg, finished dose form and active ingredients subject to the provisos of the Federal Food, Drug, Improvement and Modernization modernization Transformation of a society from a rural and agrarian condition to a secular, urban, and industrial one. It is closely linked with industrialization. As societies modernize, the individual becomes increasingly important, gradually replacing the family, Act of 2003. Rev. Rul. 2005-25 modified the family coverage rule and examples in Notice 2004-50, Q&A-31, which modified the basic HSA rules presented in Notice 2004-2. For a discussion of Notices 2004-2 and 2004-50, and many prior rulings on HSA eligibility and plan qualification, see Walker and Lutz, "Employee Benefits & Pensions: Current Developments (Part I)," 35 The Tax Adviser 694 (November 2004). |
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