Taxpayers may set up a health savings account (HSA) if they are covered by a qualifying high deductible health plan (HDHP), they are not enrolled in Medicare, and they are not the dependent of another taxpayer. Both the taxpayer and their employer may contribute to the HSA. There are annual contribution limits, and the same limits apply regardless of who makes the contributions. Earnings in the HSA accumulate tax-free and distributions are also tax-free if used to pay for qualified medical expenses.
A high deductible health plan must have a minimum annual deductible and an annual out-of-pocket maximum. The minimum plan deductible was $1,300 in 2015 for “self-only” coverage and $2,600 for family coverage. The annual out-of-pocket maximum was $6,540 in 2015 for “self-only” coverage and $13,100 for family coverage. The $6,450 / $13,100 limits include plan deductibles, co-payments and other out-of-pocket expenses, but not premiums.
The maximum HSA contribution for an employee with self-only coverage is $3,350 in 2015. The maximum HSA contribution for an employee with family coverage is $6,650 in 2015. Employees over the age of 55 are eligible for an additional $1,000 contribution.
All employer contributions to an HSA are reported on Form 8889. Contributions made by your employer up to the limit are tax-free. They are reported in Box 12 of Form W-2 with Code “W”. If the amount contributed exceeds the limit you will be subject to a 6% penalty on the excess amount (unless it is removed prior to the due date of your tax return). Taxpayers that make contributions can take an “above the line” deduction (adjustment to income).