26 USC 223 - Health savings accounts

U.S Code last checked for updates: Nov 22, 2024

§ 223.

Health savings accounts

(a)

Deduction allowed

(b)

Limitations

(1)

In general

(2)

Monthly limitation

The monthly limitation for any month is ¹⁄₁₂ of—

(A)

in the case of an eligible individual who has self-only coverage under a high deductible health plan as of the first day of such month, $2,250.

(B)

in the case of an eligible individual who has family coverage under a high deductible health plan as of the first day of such month, $4,500.

(3)

Additional contributions for individuals 55 or older

(A)

In general

(B)

Additional contribution amount

(4)

Coordination with other contributions

The limitation which would (but for this paragraph) apply under this subsection to an individual for any taxable year shall be reduced (but not below zero) by the sum of—

(A)

the aggregate amount paid for such taxable year to Archer MSAs of such individual,

(B)

the aggregate amount contributed to health savings accounts of such individual which is excludable from the taxpayer’s gross income for such taxable year under section 106(d) (and such amount shall not be allowed as a deduction under subsection (a)), and

(C)

the aggregate amount contributed to health savings accounts of such individual for such taxable year under section 408(d)(9) (and such amount shall not be allowed as a deduction under subsection (a)).

Subparagraph (A) shall not apply with respect to any individual to whom paragraph (5) applies.

(5)

Special rule for married individuals

In the case of individuals who are married to each other, if either spouse has family coverage—

(A)

both spouses shall be treated as having only such family coverage (and if such spouses each have family coverage under different plans, as having the family coverage with the lowest annual deductible), and

(B)

the limitation under paragraph (1) (after the application of subparagraph (A) and without regard to any additional contribution amount under paragraph (3))—

(i)

shall be reduced by the aggregate amount paid to Archer MSAs of such spouses for the taxable year, and

(ii)

after such reduction, shall be divided equally between them unless they agree on a different division.

(6)

Denial of deduction to dependents

(7)

Medicare eligible individuals

(8)

Increase in limit for individuals becoming eligible individuals after the beginning of the year

(A)

In general

For purposes of computing the limitation under paragraph (1) for any taxable year, an individual who is an eligible individual during the last month of such taxable year shall be treated—

(i)

as having been an eligible individual during each of the months in such taxable year, and

(ii)

as having been enrolled, during each of the months such individual is treated as an eligible individual solely by reason of clause (i), in the same high deductible health plan in which the individual was enrolled for the last month of such taxable year.

(B)

Failure to maintain high deductible health plan coverage

(i)

In general

If, at any time during the testing period, the individual is not an eligible individual, then—

(I)

gross income of the individual for the taxable year in which occurs the first month in the testing period for which such individual is not an eligible individual is increased by the aggregate amount of all contributions to the health savings account of the individual which could not have been made but for subparagraph (A), and

(II)

the tax imposed by this chapter for any taxable year on the individual shall be increased by 10 percent of the amount of such increase.

(ii)

Exception for disability or death

(iii)

Testing period

(c)

Definitions and special rules

For purposes of this section—

(1)

Eligible individual

(A)

In general

The term “eligible individual” means, with respect to any month, any individual if—

(i)

such individual is covered under a high deductible health plan as of the 1st day of such month, and

(ii)

such individual is not, while covered under a high deductible health plan, covered under any health plan—

(I)

which is not a high deductible health plan, and

(II)

which provides coverage for any benefit which is covered under the high deductible health plan.

(B)

Certain coverage disregarded

Subparagraph (A)(ii) shall be applied without regard to—

(i)

coverage for any benefit provided by permitted insurance,

(ii)

coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, long-term care, or (in the case of months or plan years to which paragraph (2)(E) applies) telehealth and other remote care, and

(iii)

for taxable years beginning after December 31, 2006, coverage under a health flexible spending arrangement during any period immediately following the end of a plan year of such arrangement during which unused benefits or contributions remaining at the end of such plan year may be paid or reimbursed to plan participants for qualified benefit expenses incurred during such period if—

(I)

the balance in such arrangement at the end of such plan year is zero, or

(II)

the individual is making a qualified HSA distribution (as defined in section 106(e)) in an amount equal to the remaining balance in such arrangement as of the end of such plan year, in accordance with rules prescribed by the Secretary.

(C)

Special rule for individuals eligible for certain veterans benefits

(D)

Special rule for individuals receiving benefits subject to surprise billing statutes

(2)

High deductible health plan

(A)

In general

The term “high deductible health plan” means a health plan—

(i)

which has an annual deductible which is not less than—

(I)

$1,000 for self-only coverage, and

(II)

twice the dollar amount in subclause (I) for family coverage, and

(ii)

the sum of the annual deductible and the other annual out-of-pocket expenses required to be paid under the plan (other than for premiums) for covered benefits does not exceed—

(I)

$5,000 for self-only coverage, and

(II)

twice the dollar amount in subclause (I) for family coverage.

(B)

Exclusion of certain plans

(C)

Safe harbor for absence of preventive care deductible

(D)

Special rules for network plans

In the case of a plan using a network of providers—

(i)

Annual out-of-pocket limitation

(ii)

Annual deductible

(E)

Safe harbor for absence of deductible for telehealth

In the case of—

(i)

months beginning after March 31, 2022, and before January 1, 2023, and

(ii)

plan years beginning on or before December 31, 2021, or after December 31, 2022, and before January 1, 2025,

a plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for telehealth and other remote care services.

(F)

Special rule for surprise billing

(G)

Safe harbor for absence of deductible for certain insulin products

(i)

In general

(ii)

Selected insulin products

For purposes of this subparagraph—

(I)

In general

(II)

Insulin

(3)

Permitted insurance

The term “permitted insurance” means—

(A)

insurance if substantially all of the coverage provided under such insurance relates to—

(i)

liabilities incurred under workers’ compensation laws,

(ii)

tort liabilities,

(iii)

liabilities relating to ownership or use of property, or

(iv)

such other similar liabilities as the Secretary may specify by regulations,

(B)

insurance for a specified disease or illness, and

(C)

insurance paying a fixed amount per day (or other period) of hospitalization.

(4)

Family coverage

(5)

Archer MSA

(d)

Health savings account

For purposes of this section—

(1)

In general

The term “health savings account” means a trust created or organized in the United States as a health savings account exclusively for the purpose of paying the qualified medical expenses of the account beneficiary, but only if the written governing instrument creating the trust meets the following requirements:

(A)

Except in the case of a rollover contribution described in subsection (f)(5) or section 220(f)(5), no contribution will be accepted—

(i)

unless it is in cash, or

(ii)

to the extent such contribution, when added to previous contributions to the trust for the calendar year, exceeds the sum of—

(I)

the dollar amount in effect under subsection (b)(2)(B), and

(II)

the dollar amount in effect under subsection (b)(3)(B).

(B)

The trustee is a bank (as defined in section 408(n)), an insurance company (as defined in section 816), or another person who demonstrates to the satisfaction of the Secretary that the manner in which such person will administer the trust will be consistent with the requirements of this section.

(C)

No part of the trust assets will be invested in life insurance contracts.

(D)

The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.

(E)

The interest of an individual in the balance in his account is nonforfeitable.

(2)

Qualified medical expenses

(A)

In general

(B)

Health insurance may not be purchased from account

(C)

Exceptions

Subparagraph (B) shall not apply to any expense for coverage under—

(i)

a health plan during any period of continuation coverage required under any Federal law,

(ii)

a qualified long-term care insurance contract (as defined in section 7702B(b)),

(iii)

a health plan during a period in which the individual is receiving unemployment compensation under any Federal or State law, or

(iv)

in the case of an account beneficiary who has attained the age specified in section 1811 of the Social Security Act, any health insurance other than a medicare supplemental policy (as defined in section 1882 of the Social Security Act).

(D)

Menstrual care product

(3)

Account beneficiary

(4)

Certain rules to apply

Rules similar to the following rules shall apply for purposes of this section:

(A)

Section 219(d)(2) (relating to no deduction for rollovers).

(B)

Section 219(f)(3) (relating to time when contributions deemed made).

(C)

Except as provided in section 106(d), section 219(f)(5) (relating to employer payments).

(D)

Section 408(g) (relating to community property laws).

(E)

Section 408(h) (relating to custodial accounts).

(e)

Tax treatment of accounts

(1)

In general

(2)

Account terminations

(f)

Tax treatment of distributions

(1)

Amounts used for qualified medical expenses

(2)

Inclusion of amounts not used for qualified medical expenses

(3)

Excess contributions returned before due date of return

(A)

In general

If any excess contribution is contributed for a taxable year to any health savings account of an individual, paragraph (2) shall not apply to distributions from the health savings accounts of such individual (to the extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year) if—

(i)

such distribution is received by the individual on or before the last day prescribed by law (including extensions of time) for filing such individual’s return for such taxable year, and

(ii)

such distribution is accompanied by the amount of net income attributable to such excess contribution.

Any net income described in clause (ii) shall be included in the gross income of the individual for the taxable year in which it is received.

(B)

Excess contribution

(4)

Additional tax on distributions not used for qualified medical expenses

(A)

In general

(B)

Exception for disability or death

(C)

Exception for distributions after medicare eligibility

(5)

Rollover contribution

An amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).

(A)

In general

(B)

Limitation

(6)

Coordination with medical expense deduction

(7)

Transfer of account incident to divorce

(8)

Treatment after death of account beneficiary

(A)

Treatment if designated beneficiary is spouse

(B)

Other cases

(i)

In general

If, by reason of the death of the account beneficiary, any person acquires the account beneficiary’s interest in a health savings account in a case to which subparagraph (A) does not apply—

(I)

such account shall cease to be a health savings account as of the date of death, and

(II)

an amount equal to the fair market value of the assets in such account on such date shall be includible if such person is not the estate of such beneficiary, in such person’s gross income for the taxable year which includes such date, or if such person is the estate of such beneficiary, in such beneficiary’s gross income for the last taxable year of such beneficiary.

(ii)

Special rules

(I)

Reduction of inclusion for predeath expenses

(II)

Deduction for estate taxes

(g)

Cost-of-living adjustment

(1)

In general

Each dollar amount in subsections (b)(2) and (c)(2)(A) shall be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which such taxable year begins determined by substituting for “calendar year 2016” in subparagraph (A)(ii) thereof—

(i)

except as provided in clause (ii), “calendar year 1997”, and

(ii)

in the case of each dollar amount in subsection (c)(2)(A), “calendar year 2003”.

In the case of adjustments made for any taxable year beginning after 2007, section 1(f)(4) shall be applied for purposes of this paragraph by substituting “March 31” for “August 31”, and the Secretary shall publish the adjusted amounts under subsections (b)(2) and (c)(2)(A) for taxable years beginning in any calendar year no later than June 1 of the preceding calendar year.

(2)

Rounding

(h)

Reports

The Secretary may require—

(1)

the trustee of a health savings account to make such reports regarding such account to the Secretary and to the account beneficiary with respect to contributions, distributions, the return of excess contributions, and such other matters as the Secretary determines appropriate, and

(2)

any person who provides an individual with a high deductible health plan to make such reports to the Secretary and to the account beneficiary with respect to such plan as the Secretary determines appropriate.

The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by the Secretary.

(Added Pub. L. 108–173, title XII, § 1201(a), Dec. 8, 2003, 117 Stat. 2469; amended Pub. L. 109–135, title IV, § 404(c), Dec. 21, 2005, 119 Stat. 2634; Pub. L. 109–432, div. A, title III, §§ 302(b), 303(a), (b), 304, 305(a), 307(b), Dec. 20, 2006, 120 Stat. 2949, 2950, 2953; Pub. L. 111–148, title IX, §§ 9003(a), 9004(a), Mar. 23, 2010, 124 Stat. 854; Pub. L. 114–41, title IV, § 4007(b)(1), July 31, 2015, 129 Stat. 466; Pub. L. 115–97, title I, §§ 11002(d)(1)(V), 11051(b)(3)(E), Dec. 22, 2017, 131 Stat. 2060, 2090; Pub. L. 115–141, div. U, title IV, § 401(a)(57), (58), Mar. 23, 2018, 132 Stat. 1186, 1187; Pub. L. 116–136, div. A, title III, §§ 3701(a), (b), 3702(a), Mar. 27, 2020, 134 Stat. 415, 416; Pub. L. 116–260, div. BB, title I, § 102(c)(4)(A), Dec. 27, 2020, 134 Stat. 2796; Pub. L. 117–103, div. P, title II, § 307(a), (b), Mar. 15, 2022, 136 Stat. 807; Pub. L. 117–169, title I, § 11408(a), Aug. 16, 2022, 136 Stat. 1905; Pub. L. 117–328, div. FF, title IV, § 4151(a), (b), Dec. 29, 2022, 136 Stat. 5931.)

cite as: 26 USC 223