![]() ![]() 559), but only to the extent the expenses are not covered by insurance or otherwise. The term “qualified medical expenses” are expenses paid by the account beneficiary, his or her spouse or dependents for medical care as defined in section 213(d) (including nonprescription drugs as described in Rev. What are the “qualified medical expenses” that are eligible for tax-free distributions?Ī-26. An “eligible individual” means, with respect to any month, any individual who: (1) is covered under a high-deductible health plan (HDHP) on the first day of such month (2) is not also covered by any other health plan that is not an HDHP (with certain exceptions for plans providing certain limited types of coverage) (3) is not enrolled in Medicare (generally, has not yet reached age 65) and (4) may not be claimed as a dependent on another person’s tax return. An “eligible individual” can establish an HSA. (II) which provides coverage for any benefit which is covered under the high deductible health plan. (I) which is not a high deductible health plan, and ![]() (ii) such individual is not, while covered under a high deductible health plan, covered under any health plan. _**(i) such individual is covered under a high deductible health plan as of the 1st day of such month, **_and The term “eligible individual” means, with respect to any month, any individual if. – Aaron can use the new HSA to pay for his $250 deductible expenses on a tax-free basis because they were incurred after the new HSA’s deemed establishment date in January 2016.įor more details on everything HSA, see our Newfront Go All the Way With HSA Guide. – Aaron’s new HSA is therefore deemed established January 2016 (not December 2019). – Aaron funded his new HSA within 18 months of the date he last had a balance in his prior HSA (July 4, 2018). – The first deposit into Aaron’s new HSA is made by Cheese heads, Inc. – Aaron distributed the last funds from that previous HSA on July 4, 2018. – Aaron had an HSA previously that was established January 2016. – Aaron is hired Novemby Cheese heads, Inc. The special rule provides that the new HSA is deemed to be established when the first HSA was established as long as the individual had an HSA with a balance greater than zero at any time during the 18-month period ending on the date the new HSA is established. Special HSA Establishment Rule: Individuals Who Had an HSA in the Previous 18 Monthsįor individuals who previously had an HSA, there is a significant exception from the general rule that may permit individuals to take a tax-free medical distribution prior to the date the new HSA is funded. – Important Note: Aaron also is not HSA eligible (i.e., eligible to make or receive HSA contributions) in November because he was not covered by the HDHP as of the first day of the calendar month. – Aaron cannot use the HSA to pay for his $250 deductible expenses on a tax-free basis because they were incurred prior to the December establishment of the HSA. – Aaron’s HSA is established in December. – The first deposit into Aaron’s HSA is made by Cheese heads, Inc. – On November 20, Aaron incurs $250 in deductible expenses under the Cheese heads, Inc. – Aaron did not establish an HSA previously. – Aaron enrolls in the company’s HDHP medical plan option. ![]() – Aaron is hired November 15 by Cheese heads, Inc. This means that in most cases an HSA is not established until a contribution is deposited. State trust law determines when an HSA is considered “established.” Most state laws require that a trust be funded to be established. Individuals may take a qualified tax-free medical distribution from an HSA only for medical expenses incurred after the individual established the HSA. General HSA Establishment Rule: Ability to Incur Expenses That are Eligible for Tax-Free Medical Distributions Does Not Begin Until HSA is Funded **Short Answer: **The general rule is that an HSA is established when it is first funded, and individuals cannot take a tax-free distribution for medical expenses incurred prior to the HSA establishment date. **Question: **When is an HSA established? ![]()
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