Can I have an HSA if employer doesn't offer it?

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My employer doesn't currently offer a way to fund a health savings account. I want to lower my modified adjusted gross income and since I have monthly medical expenses I thought I might as well have money deducted from my salary net and go into a HSA for tax purposes and to lower MAGI. I currently don't have health insurance. The employer offers a grandfathered insurance plan which still has an existing condition exclusion - the new law allowed grandfathered plans to continue to exclude pre-existing conditions for the first 6 month to 1 year of premiums depending on the state you live (exclusion in my state is 12 months). That means I can't afford to pay for premiums which aren't covering my existing needs PLUS the medical expenses of the existing needs. This is like taxation without representation... paying premiums without receiving coverage). So far, I've received an exemption from the tax mandate. I'll apply for another hardship exemption for 2016 taxes. IF I could just have a HSA, I'd have no taxes on medical expenses, but then I might not get the tax deduction for those expenses, so maybe the difference isn't much. My question: there is no way to have an HSA without the employer's involvement because they have to deduct the amount pre-tax from my check, correct?

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What was incomplete and misleading about what he said?

He seemed to be talking about employer paid plans.  Note exchange ... (more)

jerosen (Jan. 02, 2017 @ 3:04p) |

If each spouse has an HSA eligible individual HDHP plan, then they can each make a $3,400 contribution for a total of $6... (more)

btuttle (Jan. 02, 2017 @ 8:02p) |

It does not matter whether we are talking about employer plans or exchange plans. The HSA criteria is exactly the same. ... (more)

btuttle (Jan. 02, 2017 @ 8:30p) |

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KingCheap said:   My employer doesn't currently offer a way to fund a health savings account. I want to lower my modified adjusted gross income and since I have monthly medical expenses I thought I might as well have money deducted from my salary net and go into a HSA for tax purposes and to lower MAGI. I currently don't have health insurance. The employer offers a grandfathered insurance plan which still has an existing condition exclusion - the new law allowed grandfathered plans to continue to exclude pre-existing conditions for the first 6 month to 1 year of premiums depending on the state you live (exclusion in my state is 12 months). That means I can't afford to pay for premiums which aren't covering my existing needs PLUS the medical expenses of the existing needs. This is like taxation without representation... paying premiums without receiving coverage). So far, I've received an exemption from the tax mandate. I'll apply for another hardship exemption for 2016 taxes. IF I could just have a HSA, I'd have no taxes on medical expenses, but then I might not get the tax deduction for those expenses, so maybe the difference isn't much. My question: there is no way to have an HSA without the employer's involvement because they have to deduct the amount pre-tax from my check, correct?
  To open an HSA you need an qualified HDHP insurance plan. You dont need an employer to open it or fund it; you can do it on your own.

In your case, without a qualified HDHP, you are not eligible for an HSA.

Thanks for the quick answer. Guess I'll stick to getting a hardship tax exemption and tax deduction for medical expenses.

On a related note, Employer funding of an HSA is the only way to avoid payroll taxes on the contribution. Non-employer contributions are tax-deductible, but after payroll taxes have already been deducted. Unfortunately, banks have taken advantage of this and many employer funded accounts come with a monthly fee now.

KingCheap said:   Thanks for the quick answer. Guess I'll stick to getting a hardship tax exemption and tax deduction for medical expenses.
Do you currently qualify for the medical expense deduction?

I'm only asking because, as a tax preparer, I encounter a lot of people who think they can get a deduction for their medical expenses but fail to meet the two main criteria:

  1. You itemize deductions. This only makes sense if your total deductions are greater than the standard deduction.
  2. If you are under 65, you can only deduct the amount of your medical expenses that exceeds 10 percent of your AGI. For example, if your AGI is $50,000 and your medical expenses are $7500, you can only deduct $2500 ($7500 - $5000) of medical expenses.

gatzdon said:   On a related note, Employer funding of an HSA is the only way to avoid payroll taxes on the contribution. Non-employer contributions are tax-deductible, but after payroll taxes have already been deducted. Unfortunately, banks have taken advantage of this and many employer funded accounts come with a monthly fee now.
  Employee contributions by payroll deduction are treated as employer contributions. They are not subject to FICA.

sfuffy said:   
KingCheap said:   Thanks for the quick answer. Guess I'll stick to getting a hardship tax exemption and tax deduction for medical expenses.
Do you currently qualify for the medical expense deduction?

I'm only asking because, as a tax preparer, I encounter a lot of people who think they can get a deduction for their medical expenses but fail to meet the two main criteria:

  1. You itemize deductions. This only makes sense if your total deductions are greater than the standard deduction.
  2. If you are under 65, you can only deduct the amount of your medical expenses that exceeds 10 percent of your AGI. For example, if your AGI is $50,000 and your medical expenses are $7500, you can only deduct $2500 ($7500 - $5000) of medical expenses.


  
This.  Despite substantial medical expenses that insurance won't touch we don't take the deduction.

btuttle said:   
gatzdon said:   On a related note, Employer funding of an HSA is the only way to avoid payroll taxes on the contribution. Non-employer contributions are tax-deductible, but after payroll taxes have already been deducted. Unfortunately, banks have taken advantage of this and many employer funded accounts come with a monthly fee now.
  Employee contributions by payroll deduction are treated as employer contributions. They are not subject to FICA.


gatzson said non-employer contributions.

doveroftke said:   
btuttle said:   
gatzdon said:   On a related note, Employer funding of an HSA is the only way to avoid payroll taxes on the contribution. Non-employer contributions are tax-deductible, but after payroll taxes have already been deducted. Unfortunately, banks have taken advantage of this and many employer funded accounts come with a monthly fee now.
  Employee contributions by payroll deduction are treated as employer contributions. They are not subject to FICA.

gatzson said non-employer contributions.

  Employee HSA contributions by payroll deduction ARE non-employer contributions. They are just treated as employer contributions so they are NOT subject to FICA. Only direct contributions outside of the employer and payroll are not exempt from FICA.

btuttle said:   doveroftke said:   
btuttle said:   
gatzdon said:   On a related note, Employer funding of an HSA is the only way to avoid payroll taxes on the contribution. Non-employer contributions are tax-deductible, but after payroll taxes have already been deducted. Unfortunately, banks have taken advantage of this and many employer funded accounts come with a monthly fee now.
  Employee contributions by payroll deduction are treated as employer contributions. They are not subject to FICA.

gatzson said non-employer contributions.

  Employee HSA contributions by payroll deduction ARE non-employer contributions. They are just treated as employer contributions so they are NOT subject to FICA. Only direct contributions outside of the employer and payroll are not exempt from FICA.


Yes, and OP doesn't have an employer that offers the HSA. That's the point.

btuttle said:   
doveroftke said:   
btuttle said:   
gatzdon said:   On a related note, Employer funding of an HSA is the only way to avoid payroll taxes on the contribution. Non-employer contributions are tax-deductible, but after payroll taxes have already been deducted. Unfortunately, banks have taken advantage of this and many employer funded accounts come with a monthly fee now.
  Employee contributions by payroll deduction are treated as employer contributions. They are not subject to FICA.

gatzson said non-employer contributions.

  Employee HSA contributions by payroll deduction ARE non-employer contributions. They are just treated as employer contributions so they are NOT subject to FICA. Only direct contributions outside of the employer and payroll are not exempt from FICA.

  That's exactly what gatzdon was saying.

BingBlangBlaow said:   
btuttle said:   
doveroftke said:   
btuttle said:   
gatzdon said:   On a related note, Employer funding of an HSA is the only way to avoid payroll taxes on the contribution. Non-employer contributions are tax-deductible, but after payroll taxes have already been deducted. Unfortunately, banks have taken advantage of this and many employer funded accounts come with a monthly fee now.
  Employee contributions by payroll deduction are treated as employer contributions. They are not subject to FICA.

gatzson said non-employer contributions.

  Employee HSA contributions by payroll deduction ARE non-employer contributions. They are just treated as employer contributions so they are NOT subject to FICA. Only direct contributions outside of the employer and payroll are not exempt from FICA.

  That's exactly what gatzdon was saying.

  Um.... NO!!!  This is what...
gatzdon said:   On a related note, Employer funding of an HSA is the only way to avoid payroll taxes on the contribution. Non-employer contributions are tax-deductible, but after payroll taxes have already been deducted. Unfortunately, banks have taken advantage of this and many employer funded accounts come with a monthly fee now.
Employer "funding" to me are true employer contributions and are irrelevant. It does not even matter if the employer has a designated HSA provider or not. All that is necessary is that the employment has a Section 125 plan option for HSA deductible contributions and that those contributions are deposited in some HSA provider.

If THAT is what gatzdon meant, then very imprecise language was used and the rest of you also lept to a conclusion not in evidence..

btuttle said:   Employer "funding" to me are true employer contributions and are irrelevant. It does not even matter if the employer has a designated HSA provider or not. All that is necessary is that the employment has a Section 125 plan option for HSA deductible contributions and that those contributions are deposited in some HSA provider.

If THAT is what gatzdon meant, then very imprecise language was used and the rest of you also lept to a conclusion not in evidence..
 

  
I understand your point, tax treatment of employer benefits and the related terminology is not at all intuitive. However, for anyone familiar with these details, gatzon's language was not imprecise. Perhaps its a failing on our part for using the technical rather than lay terminology (it can be exclusionary, which is not the purpose of this forum).

doveroftke said:   
btuttle said:   Employer "funding" to me are true employer contributions and are irrelevant. It does not even matter if the employer has a designated HSA provider or not. All that is necessary is that the employment has a Section 125 plan option for HSA deductible contributions and that those contributions are deposited in some HSA provider.

If THAT is what gatzdon meant, then very imprecise language was used and the rest of you also lept to a conclusion not in evidence..

  
I understand your point, tax treatment of employer benefits and the related terminology is not at all intuitive. However, for anyone familiar with these details, gatzon's language was not imprecise. Perhaps its a failing on our part for using the technical rather than lay terminology (it can be exclusionary, which is not the purpose of this forum).

In re-reading what I type, yes it was imprecise.

The distinction is for Tax Treatment of Employee Contributions through payroll deductions.  To avoid FICA, the contribution must be withheld from the paycheck and deposited by the employer.  Anything else will result in the 7.65% FICA tax with no option to get that back.

For an eligible family, $6750 * 7.65% = $516.38.

Let me piggyback on this thread since I am switching employers.

My new employer offers an HSA, but it is only a savings account, no investment options (so like 2% interest at best). Theoretically (I think) I could put money into this account via payroll deduction and then transfer it out, but then I'd pay a fee for that and have to deal with having two HSA accounts.

I could open an HSA with a different provider, but then payroll deduction is not an option so I'd be out FICA and I'd have to put in after tax money (but I'd get taxes refunded back at tax time). On the plus side I could invest it.

I think the best option for now is go with my employer's HSA and then when the balance gets up there (say more than $5K), look at transferring it to a different HSA that allows investments. Thoughts?

realjones said:   I think the best option for now is go with my employer's HSA and then when the balance gets up there (say more than $5K), look at transferring it to a different HSA that allows investments. Thoughts?
 

  That seems like a good option. 2% interest is nothing to balk at BTW.

fwuser12 said:   
realjones said:   I think the best option for now is go with my employer's HSA and then when the balance gets up there (say more than $5K), look at transferring it to a different HSA that allows investments. Thoughts?
  That seems like a good option. 2% interest is nothing to balk at BTW.

  You could do this once every 12 months by check as an indirect rollover. This would avoid any transfer fee.

One thing to note is that some plans don't call themselves HDHP, but you may still qualify based on the IRS requirements.  Under the new ObamaCare plans, most employer plans meet the guidelines for HDHP: 
For calendar year 2016, the High Deductible Health Plan (HDHP) required deductibles for an HSA are:

$1,300 for self-only coverage (no change from 2015)

$2,600 for family coverage (no change from 2015)

2016 HDHP Out-of-Pocket Maximum

The annual out-of-pocket expenses include deductibles, co-payments, and other amounts, but not premiums.

For calendar year 2016, the out-of-pocket maximums are:

$6,550 for self-only coverage (up $100 from 2015)

$13,100 for family coverage (up $200 from 2015)

NOTE: If you have money to save, you NEED to be maxing out your HSA. Tax deduction for money you put in (no need to itemize), tax deferred growth, and tax free withdrawal if used for medical expenses. HSA's can also be used to save for retirement. If you have questions about how to set up an HSA or if you would like to know more about using an HSA for retirement, send me a private message and I would be happy to walk through it given your personal situation.

bgriffith67 said:   One thing to note is that some plans don't call themselves HDHP, but you may still qualify based on the IRS requirements.  Under the new ObamaCare plans, most employer plans meet the guidelines for HDHP:
 

This statement is incomplete, misleading and counterproductive to helping people navigate the health insurance minefield.

I have not seen any HDHP on the Obamacare Exchanges not labelled as such. On the other hand, there are many HDHPs on those exchanges that are not qualifying plans for HSA contributions.


 

Edit with answer: If either spouse has family coverage, both spouses are treated as having family coverage. This means I can have as many plans as I want with up to an aggregate of the family limit for the tax year.


Kind of a related question:

I have an individual HDHP through my employer which does not offer an HSA.
My wife has a family HDHP through her employer that covers her and our children which also does not offer an HSA.

Does this mean I am limited to two individual HSA's (max contribution of 2x $3,400) instead of a single family HSA (max of $6,750 but won't incur fees associated with two accounts)?
 

btuttle said:   
bgriffith67 said:   One thing to note is that some plans don't call themselves HDHP, but you may still qualify based on the IRS requirements.  Under the new ObamaCare plans, most employer plans meet the guidelines for HDHP:
 

This statement is incomplete, misleading and counterproductive to helping people navigate the health insurance minefield.

I have not seen any HDHP on the Obamacare Exchanges not labelled as such. On the other hand, there are many HDHPs on those exchanges that are not qualifying plans for HSA contributions.


 

  

What was incomplete and misleading about what he said?

He seemed to be talking about employer paid plans.  Note exchange plans.

AFAIK he's right on the deductible and OOP limits cited and that alone qualifies you for HSA eligibility.

 

DPG said:   Edit with answer: If either spouse has family coverage, both spouses are treated as having family coverage. This means I can have as many plans as I want with up to an aggregate of the family limit for the tax year.


Kind of a related question:

I have an individual HDHP through my employer which does not offer an HSA.
My wife has a family HDHP through her employer that covers her and our children which also does not offer an HSA.

Does this mean I am limited to two individual HSA's (max contribution of 2x $3,400) instead of a single family HSA (max of $6,750 but won't incur fees associated with two accounts)?

If each spouse has an HSA eligible individual HDHP plan, then they can each make a $3,400 contribution for a total of $6,800, but each $3,400 would have to go to their respective HSAs. Neither of them is consider to have a family plan.

If one spouse has an HSA eligible individual HDHP plan and one spouse has an HSA eligible family plan, then both spouses are considered as having an HSA eligible family HDHP plan with a combined contribution limit of $6,750. Either spouse could make the entire contribution to their HSA and the other spouse nothing or any distribution of the total that they agree to.

Yes, it is ironic, but for 2017 two individual plans can make a larger combined contribution than one individual plan and one family plan. The opposite was true for 2016.

See my next post for clarifying that not all HDHP plans are eligible for an HSA.

jerosen said:   
btuttle said:   
bgriffith67 said:   One thing to note is that some plans don't call themselves HDHP, but you may still qualify based on the IRS requirements.  Under the new ObamaCare plans, most employer plans meet the guidelines for HDHP:
This statement is incomplete, misleading and counterproductive to helping people navigate the health insurance minefield.

I have not seen any HDHP on the Obamacare Exchanges not labelled as such. On the other hand, there are many HDHPs on those exchanges that are not qualifying plans for HSA contributions.

What was incomplete and misleading about what he said?

He seemed to be talking about employer paid plans.  Note exchange plans.

AFAIK he's right on the deductible and OOP limits cited and that alone qualifies you for HSA eligibility.

It does not matter whether we are talking about employer plans or exchange plans. The HSA criteria is exactly the same. He and you are most definitely wrong about meeting the minimum deductible and not exceeding the max OOP are the sole criteria for establishing HSA eligibility.

To be HSA eligible, HDHP plan reimbursements and if an employer plan, employer reimbursements must not be available until IRS deductible minimum (not the plan deductible) has been met.

Here are some issues that disqualify an HDHP plan with the minimum deductible and do not exceed the OOP maximum:

  • HDHP plan first dollar reimbursements, co-pay and co-insurance before the IRS minimum deductible.
  • HDHP embedded individual deductible for a family plan below the family plan IRS minimum deductible.
  • Employer general purpose HRA other than a post deductible HRA and/or limited purpose HRA (only for non-medical expenses such as vision and dental).
  • Employer general purpose FSA other than a post deductible HRA and/or limited purpose HRA (only for non-medical expenses such as vision and dental).

Many of the Marketplace plans are not HSA eligible, because they provide reimbursements after co-pays. Even if the co-pays are just provided for prescriptions this is enough to disqualify the plan.
 



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