Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

Health savings accounts (HSAs) are tax-exempt trusts or custodial accounts created exclusively to pay for the qualified medical expenses of the account holder and his or her spouse and dependents. Contributions to an HSA can be made by "eligible individuals" or their employers or both. Within limits, contributions to HSAs are deductible above-the-line when determining AGI if made by individuals and are excludable from gross income and taxable wages if made by their employers. Distributions from HSAs for qualified medical expenses are not includible in gross income. The cost incurred for a medicine or drug will be treated as a qualified medical expense for purposes of a distribution from an HSA only if the medicine is a prescription drug or insulin. Distributions from HSAs to pay for over-the-counter medicines are not excluded from the gross income of the employee and will be subject to a penalty.

Distributions from an HSA for purposes other than qualified medical expenses are includible in the account holder’s gross income and subject to an additional 20-percent penalty. However, the 20-percent penalty does not apply to distributions made after death, disability, or after the account holder attains age 65. Therefore, an HSA can serve as a tax-deferred retirement savings vehicle to the extent amounts in the account are not needed for current medical expenses.