Get the Tax Advantage of a Health Savings Account
A Health Savings Account is a smart alternative to traditional health insurance. It’s a savings product that offers a different way for consumers to pay for their health care. The funds contributed to the account are not subject to federal income tax when deposited into the plan, and are used to pay for qualified medical expenses at any time without federal tax liability.
Those who are eligible to open a Health Savings Account are:
- Individuals who are covered by a High Deductible Health Plan (HDHP)
- Individuals not covered by other health insurance plans
- Individuals not enrolled in Medicare
A person can sign up for a Health Savings Account with banks and credit unions, insurance companies and other approved providers. Not all insurance companies offer qualified Health Savings Accounts, so it is important to do your homework. An employer can set up a Health Savings Account plan for employees, and that plan is always owned by the individual. Direct online enrollment in this plan is available in most states, with the exception of Hawaii, Massachusetts, Minnesota, New Jersey, New York, Rhode Island, Vermont and Washington.
Contributions to the Health Savings Account are made by the individual who owns the account, but may also be made by an employer or any other person. When made by the employee, that contribution is exempt from federal tax. If made by the employer, the contribution is not included in the employee’s income.