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Manhattan Bank

Health Savings Account

What is a Health Savings Account (HSA)?


A Health Savings Account (HSA) is an account owned by an individual where contributions to the account are to pay for current and future medical expenses. These accounts are tax-sheltered savings accounts similar to the Individual Retirement Account (IRA), but earmarked for medical expenses. HSA accounts are designed for people with High Deductible Health Plans. Deposits are 100% tax-deductible and can be easily withdrawn by check or debit card to pay routine medical bills with before-tax dollars.

HSA funds can only be used to pay for "qualified medical expenses", including dental and vision needs, even if the expense is not covered by your High Deductible Health Plan. Unused balances in your account carry over from year to year. Best of all, even if you never use the money for medical expenses, it stays in your account and can be withdrawn for any purpose at age 65. At that time, you'll pay only income tax on the monies you withdraw for non-health related expenditures.

"Joint" HSA accounts are not permitted.


Who is eligible for a Health Savings Account (HSA)?


You must be covered by a HSA-qualified High Deductible Health Plan (HDHP) to take advantage of an HSA.  An HDHP is a plan with an annual deductible of at least $1,350 for individual coverage or $2,700 for family coverage with a maximum out-of-pocket expense of $6,650 for individual and $13,300 for family (2018). The guidelines are determined by the Internal Revenue Service each year.

Note: A plan will still qualify as a HDHP even though it may not have a deductible (or has only a small deductible) if it is for preventative care.


An eligible individual is one who is:

  • Covered by a High Deductible Health Plan
  • Not enrolled in Medicare
  • Not claimed as a dependent on another person's tax return
  • Not covered by any other health insurance that is not an HDHP
  • Not in a health plan with a "first pay benefit".

Insurance Coverage Exceptions include:

  • Specific disease or illness insurance
  • Accident, disability, dental care, vision care and long-term care insurance
  • Employee assistance programs
  • Disease management program or wellness program if there is no medical care or treatment involved
  • Discount card for health care services or products such as a pharmacy card


How does a Health Savings Account work?


Contributions to HSA's can be made by the employer or the individual, or both. If the contributions are made by the employer, it is not taxable to the employee. If contributions are made by the individual, they are an "above-the-line" deduction. Contributions must stop once an individual is enrolled in Medicare.

There is a maximum aggregate annual contribution that can be made to an HSA of $3,450 for individuals and $6,900 for family plans (2018 information).

Contributions to the HSA in excess of the contribution limits must be withdrawn by the individual or be subject to an excise tax.


Tax Advantages

  • Contributions are 100% tax deductible
  • Funds grow on a tax-deferred basis, and if the funds are used for an eligible medical expense, the funds are tax-free
  • If your employer offers a cafeteria plan, you can contribute to your HSA on a pre-tax basis (i.e., before income taxes and FICA taxes). Or if not an option, you can take the "above the line" deduction on your personal income taxes
  • Consult your tax advisor for more details

Customer Responsibilities

  • Provide proper identification during account opening
  • Prove your enrollment in a High Deductible Health Plan
  • Decide how much to use for medical expense and which medical expenses to pay from account
  • Keep records/receipts for all medical expenses for which the HSA has been used
  • File proper tax forms

For more information on Health Savings Accounts visit the Treasury's Website .