Author Archives | Randall Graham

About Randall Graham

Randy holds a bachelor’s degree from Southern Methodist University and holds Chartered Life Underwriter and Accredited Investment Advisor designations. He joined J.W.Terrill in 1979 as a Vice President of sales where he is responsible for providing and managing all aspects of sales, administrative services and consultative services for client accounts.

Paying medical claims with a Health Savings Account. When can it be done tax free?

April 10, 2019


I have run into this situation several times recently: An employee attempts to pay for their qualified medical expense claim with their health savings account (HSA) tax-free dollars, but are still taxed or face penalties. Why would this happen? Well, the ability to pay with tax-free HSA dollars is not based on when an employee enrolls in the Qualified High Deductible Plan (QHDHP), but rather when he or she establishes the HSA. Yes, the HSA is established separately from the QHDHP. An employee may decide to establish their HSA immediately, after a few months, or may not establish one at all, even when they are enrolled in a QHDHP.

It’s important to establish the HSA when first enrolled in a QHDHP, even if the employee can only contribute the minimum amount. The contribution can be increased or decreased going forward. The date the HSA is established determines eligibility to “go back” to pay a claim.

Consider this example:

An employee, Don, decides to enroll his family in the QHDHP offered by his employer as of January 1. However, Don does not establish his HSA until February 1. He incurs a $10,000 claim on January 12th with follow up doctor visits on January 16th, 23rd and 30th. On the February 15th payroll, Don adds $5,000 to his HSA to help pay the claims from January. Here’s the timeline:

  • January 1 –  Don enrolls in QHDHP
  • January 12 –  Don incurs $10,000 claim with follow up doctor visits on January 16th, 23rd, and 30th
  • February 1 – Don establishes his HSA
  • February 15 – Don adds $5,000 to his HSA to help pay for January claims

Don’s QHDHP has a $3,000/$6,000 embedded deductible. Don thought he would pay for his January claims when they came due in February or March with his HSA funds, and still have money left over after he’d met the $3,000 individual deductible portion.

However, his HSA account was not established until after the claims occurred. Though these claims would still apply to his deductible, Don cannot use his pre-tax HSA funds to pay for these claims. If he did, he would be subject to taxes and potential penalties.

Employees can fund their HSA to the applicable maximum established by the IRS each plan year, but they cannot pay for claims which occurred prior to the HSA being established.

To avoid this kind of problem, it’s important that employers educate their employees on the importance of opening their HSA at the same time as enrolling in the QHDHP being offered.

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Common Questions Regarding HSA’s

January 30, 2013


We receive many question regarding HSA benefits.  These are some common questions we have addressed.

Many people have what are called Health Savings Accounts (HSA). In order to have an HSA you must have a qualified High Deductible Health plan (QHDHP) first. The HSA is not the medical plan, it is only a savings account one can have alongside a Qualified Medical plan called a QHDHP.

I am 65 and eligible for Medicare.  Can I contribute to my HSA?

There are several issues to consider with High Deductible Health Plans and the HSA if you are nearing eligibility for any part of Medicare.

First, there is a difference between being eligible and enrolled. If you are eligible you can enroll in Medicare but you do not have to enroll if you are still employed and covered under your employer’s plan.

Second, if you are eligible and you enroll in any part (Part A, Part B or Part D) you cannot have any more contributions made to your HSA by you or your employer.

Third, you can still use your existing HSA for qualified expenses (Section 213(d) in IRS Code).

A caveat to be careful of is the size of your employer. If your employer is under 20 eligible employees then the employer’s insurance provider may assume you have Medicare and only pay as excess (secondary) coverage. This means you may have to enroll in Medicare Part A and therefore unable to have contributions made by you or your employer to your HSA. If your employer is over 20 eligible employees then the insurance provider plan is primary coverage.  Also, in many States Medicare Part A is automatic or you are enrolled without realizing or wanting to enroll in Medicare Part A. You can check with CMS.

Again, check with your advisor. The insurance provider can tell you if the plan is primary or secondary payer to Medicare.

I am an owner of an S Corp business.  Can I contribute to an HSA?

Yes, anyone who is an S Corp Shareholder can have Employer or Employee contributions to an HSA.

However, if you are a 2% shareholder or more these must be made on or after tax basis and you receive your Federal & State deduction when you file your taxes. Bear in mind there are several states that do not allow a deduction for HSA contributions. CA, NJ, AL are 3 that do not.

You do not receive FICA deductions as a 2% shareholder or more for your contributions, only Federal and possibly state deductions.

As another idea to consider, if you can determine your federal & state payroll deductions you could adjust your deductions to reflect your potential deduction during the year on each paycheck vs. waiting to receive the deduction when you file your taxes.

JWT is not a tax advisor and therefore would recommend you check with your CPA or tax consultant on all tax matters.

How much can I contribute to my HSA?

For 2013 the contribution maximums are $3,250 for individual coverage and $6,450 for all other coverage’s.

If you are 55 or over, you can contribute an additional $1,000 as a catch up contribution. If your spouse is on a Qualified High Deductible Health Plan (QHDHP), yours or their employer plan, they can also contribute an additional $1,000 catch up contribution. The spouse’s catch up contribution must be a separate HSA Account.

What if I do not start my HSA right away, can I contribute later in the year if I incur qualifying medical expenses and want to use an HSA to pay for those incurred expenses prior to opening my HSA?

For example, if you are on a QHDHP effective 1-1 and do not start an HSA until 7-1, then you cannot use the HSA distributions for any expenses prior to 7-1.

However, if you contribute some amount to get the HSA opened on 1-1, then you can contribute at a later date to pay for an incurred expense from 1-1 as long as your remain eligible to contribute to an HSA.

So, again as our example, if you open your HSA on 1-1 with the minimum the bank or HSA provider allows to open an account, which we will assume $100, and contribute nothing more.  In June you incur $2,000 of qualified medical expenses, then you can contribute that $2,000 in July and pay the qualified medical expenses then or pay yourself back if you paid the expenses by another method previously.

It is usually best if you can contribute as a payroll deduction to your HSA since you would generally receive the Federal, State, and FICA deduction through the 125 Payroll Deduction if eligible for them thus saving yourself the most in taxes for that HSA contribution.

As with all tax related questions, you should ask your tax advisor regarding your specific situation.

If you have any other questions, please feel free to ask your JWT Consultant.

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