Health savings account (HSA) is a tax-free account created for individuals who pay for qualified medical expenses and are covered by a High deductible health plan (HDHP) to save for medical expenses that HDHPs do not cover.
Health savings account definition (HSA)
Health savings account (HSA) is a tax-free account created for individuals who pay for qualified medical expenses and are covered by a High deductible health plan (HDHP) to save for medical expenses that HDHPs do not cover. In order to be qualified for HSA individual can't be covered by other health insurance and can’t be claimed as a dependent on someone else’s tax return.
Health savings account in business
HSA allows employers and employees to contribute to a tax-deferred personal savings account which is used to pay smaller and routine medical expenses such as dental, vision and over-the-counter drugs.
Contributions are invested over time into the account by the employee or the employer, can be used to pay for qualified medical expenses and are limited to a maximum amount each year. Amounts are portable meaning that the money not spent would stay in the account and gain interest tax-free, remaining available for later years.
HSA types of tax-advantaged contributions
1. The individual and family members can make tax deductible contributions to the HSA even if the individual does not itemize deductions.
2. The individual's employer can make contributions that are not taxed to either the employer or the employee.
3. Employers with cafeteria plans can allow employees to contribute untaxed salary through a salary reduction plan.
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