CONTRIBUTION to HSAs

1. Who may contribute to a HSA? Any eligible individual may contribute to a HSA. For a HSA established by an employer, the employee, the employee's employer or both may contribute to the HSA. For a HSA established by a self-employed (or unemployed) individual, the individual may contribute to the HSA. Family members may also make contributions to a HSA on behalf of another family member as long as that other family member is an eligible individual. Contibutions must stop once the individual is eligible for medicare.

2. How much may be contributed to a HSA in calendar year 2007?
The maximum annual contribution to a HSA is $2,800 for a single and $5,650 for a family regardless of the deductible and regardless of the month that it is established.  This is a significant change from 2006. 

3. What are the "catch-up contributions" for individuals age 55 or older?
For individuals (and their spouses covered under the HDHP) between ages 55 and 65, the HSA contribution limit is increased to $800 in calendar year 2007. This catch-up amount will increase in $100 increments annually, until it reaches $1,000 in calendar year 2009. After an individual has attained age 65 (the Medicare eligibility age), contributions, including catch-up contributions, cannot be made to an individual's HSA.

4. If one or both spouses have family coverage, how is the contribution limit computed?
If either spouse has family coverage, both are treated as having family coverage.

5. In what form must contributions be made to a HSA?
Contributions to a HSA must be made in cash. For example, contributions may not be made in the form of stock or other property. Payments for the HDHP and contributions to the HSA can be made through a cafeteria plan.

6. When may HSA contributions be made? Is there a deadline for contributions to a HSA for a taxable year?
Contributions for the taxable year can be made in one or more payments, at the convenience of the individual or the employer, at any time prior to the time prescribed by law (without extensions) for filing the eligible individual's federal income tax return for that year, but not before the beginning of that year. For calendar year taxpayers, the deadline for contributions to a HSA is generally April 15 following the year for which the contributions are made. The maximum contribution may be made at any time.

7. What happens when HSA contributions exceed the maximum amount that may be deducted or excluded from gross income in a taxable year?
Contributions by individuals to a HSA, or if made on behalf of an individual to a HSA, are not deductible to the extent they exceed the limits. Contributions by an employer to a HSA for an employee are included in the gross income of the employee to the extent that they exceed the limits or if they are made on behalf of an employee who is not an eligible individual. In addition, an excise tax of 6% for each taxable year is imposed on the account beneficiary for excess individual and employer contributions. However, if the excess contributions for a taxable year and the net income attributable to such excess contributions are paid to the account beneficiary before the last day prescribed by law (including extensions) for filing the account beneficiary's federal income tax return for the taxable year, then the net income attributable to the excess contributions is included in the account beneficiary's gross income for the taxable year in which the distribution is received but the excise tax is not imposed on the excess contribution and the distribution of the excess contributions is not taxed.

8. Are rollover contributions to HSAs permitted?

9. Can the employer pay for the setup fees for each of the employees and not contribute to the HSA?
Yes. The employer can pay the setup fees by sending a separate check with the employee applications accompanied by each employee's check for the opening contributions

10. How is money deposited into a HSA? What frequency?
Employer funded or payroll deduction: Established by the HSA custodian, often the employer mails a check with listing of employees so they know how to allocate funds. Some custodians permit the employer to originate EFT transfers on a periodic basis.
Employee funded: Most common is that employer mails the check with contribution form. Employer can also request that the custodian originate EFT transfers on periodic basis.

11. What discrimination rules apply to HSA contributions?
If an employer makes HSA contributions, the employer must make available comparable contributions on behalf of all "comparable participating employees" (i.e., eligible employees with comparable coverage) during the same period. Contributions are considered comparable if they are either the same amount or same percentage of the deductible under the HDHP. The comparability rule is applied separately to part-time employees (i.e., employees who are customarily employed for fewer than 30 hours per week).  If employer contributions do not satisfy the comparability rule during a period, the employer is subject to an excise tax equal to 35% of the aggregate amount contributed by the employer to HSAs for that period.  Current law requires employers to make comparable contributions to an HSA for all employees. Under this bill, an employer may make higher contributions for non-highly compensated employees, enabling employers to provide additional resources to employees who are neither owners of five percent or more of the business nor among the most highly-paid in the company for tax years AFTER December 31, 2006.