|Age 54 and under||Age 55 and above|
The IRS allows for an extra $1,000 catch-up contribution during the year you turn 55. So, if your 55th birthday is in the 2014 calendar year, you are eligible for the extra contribution.
For those using Tango to manage their HSA, your 2014 annual contribution limit will be updated based on your insurance coverage, as reported by your employer, and age. Also, if you or your spouse contribute to another HSA this year, you should enter those contributions n Tango’s limit calculator to avoid exceeding your IRS maximum. Learn more about how spouses should handle HSAs here.
|Minimum Deductible||Maximum Out-of-Pocket|
Below are the IRS guidelines of FSA contribution limits, but your employer may restrict these based on their plan design.
|FSA (including limited)||$25||$2,500|
Your employer may also decide to utilize the new Carryover period in lieu of a Grace Period this year. This option allows you to carry up to $500 of your remaining 2013 balance into 2014. This only affects your Health FSA and does not apply to Limited or Dependent Care FSAs.
We recently received a question from an account holder and we thought it would be beneficial to post the answer for anyone else who may be wondering the same thing.
“What happens to my Health Savings Account (HSA) when I become eligible for Medicare?”
It’s important to distinguish between “eligible” and actually “enrolled.” If you are simply eligible but do not enroll in any parts of Medicare, your ability to contribute to your HSA is not impacted. If you become enrolled in any part of Medicare, whether automatically or manually, then you are ineligible to contribute to an HSA. For the most reliable and accurate information on Medicare vs HSAs, you should always refer to the IRS publication 969. Here is the link: http://www.irs.gov/publications/p969/index.html.
In that publication, click on the section titled “Qualifying for an HSA.” Here is an excerpt from the document on ineligibility due to Medicare:
“Beginning with the first month you are enrolled in Medicare, your contribution limit is zero.
Example: You turn age 65 in July 2013 and enroll in Medicare. You have an HDHP with self-only coverage and are eligible for an additional contribution of $1,000. Your contribution limit is $2,125 ($4,250 × 6 ÷ 12).”
If you choose not to enroll in Medicare when you turn 65 then you can continue to contribute to and use your HSA as normal, assuming you are still enrolled in a HDHP (High Deductible Health Plan).
A word of caution: if you are receiving Social Security benefits when you first become eligible for Medicare, you will be automatically enrolled in Medicare Part A and lose your HSA eligibility. If you are enrolling in Social Security when you turn 65, you will also be eligible for and enrolled in Medicare and therefore will lose your HSA eligibility.
In summary, if you are currently enrolled in any part of Medicare then you are ineligible to open and contribute to an HSA. If you have an existing HSA and turn 65 during the year in which you have it, you will be eligible to contribute a pro-rated amount to your account but will no longer be eligible to make contributions starting the first month you are enrolled in Medicare. However, you can still use any money left in your HSA on eligible expenses tax-free, and you can even use your HSA to pay for your Medicare premiums. Plus, turning 65 allows you to take money out of your HSA for non-eligible expenses without the 20% penalty! Just pay taxes on funds used for non-eligible expenses, similar to how you spend from your 401k.
For more details on Medicare enrollment, please see the 2014 enrollment guide (page 19 discusses auto-enrollment): http://www.medicare.gov/Pubs/pdf/10050.pdf.
To see answers for other HSA-related questions that we’ve answered on our blog, check out our Health Savings Account (HSA) Expert Blog Series. Please contact our support team with any further HSA-related Medicare questions by email at firstname.lastname@example.org or by phone at (866) 384-8549.
In our previous blog posts we discussed the need to measure the amount of hours worked by part time employees; in this post, we’ll talk more about how to go about doing the measurement. While most companies have already decided how they’d like to measure, we know there are plenty of you who still are finalizing your decisions.
The waiting period is the maximum amount of time that an employer can wait to offer NEW benefits eligible employees health benefits. According to the Affordable Care Act (ACA) employers can wait no longer than 90 days to offer affordable health benefits to new full-time employees.
Measurement periods are categorized two ways: look back (for existing employees) and initial (for new employees). For new employees, employers choose a period between three and twelve months to measure whether an employee qualifies as part time or full time.
The look back method is for existing employees to more realistically determine their status by looking back at a standard measurement period (again, selected by the employer and between 3 and 12 months) and reviewing the employee’s number of hours worked each week.
Once the standard measurement period is completed, the results will then apply for a defined stability period that should equal your standard measurement period, but can be no shorter than six months.
To keep the measurement and stability periods from stretching too long, an employee determined to be full time must remain in that category for the length of a standard measurement period (again, no shorter than six months). If an employee is determined to be part time, then employers can continue to consider them part time for the entire length of the stability period but no longer than the standard measurement period.
The initial measurement period is for new employees to start tracking their hours and determine a status within a reasonable amount of time. After employment begins, it can last between 3 and 12 months, as determined by the employer. Once the initial measurement period is completed, the results will then apply for a defined stability period. This helps make sure the determined status remains for a period of time, which is at least six consecutive calendar months but no shorter than the standard measurement period. Most stability periods will align with plan years to assist with administering benefits.
In between the measurement and stability periods can be an administrative period, which is time that should be used to notify and make changes. This can last up to 90 days and likely will encompass a traditional open enrollment period.
For example, a company chooses a 12 month stability period to match their benefits year: January 1 to December 31. Then, they choose a 12 month measurement period that runs from October 15 through the following October 14th. They opt for an administrative period that runs from October 15 to December 31.
An employee who has worked for the employer for several years will have their hours reviewed for an entire measurement period. If the average hours worked each week during the October 15-October 14 period is more than 30 hours, then the employer will have until January 1 to offer benefits.
As described above, the employer can opt for an initial measurement period to handle new hires that is between three and twelve months. If, after this initial measurement period, the employee is determined to be full time, they must be offered benefits for a timeframe equal to the stability period for ongoing employees. There can be an administrative period in between to allow for notification and sign up.
For example, the company described above chooses a 3 month initial measurement period, a 2.5 month administrative period, a 12 month measurement period and a 12 month stability period. An employee hired on January 1st completes a 90 day waiting period and for the first 3 months averages 31 hours per week. The employer must offer benefits that begins after the 2.5 month administrative period ends and continue offering it to the employee until a year has passed.
At the same company, another employee completes a 90 day waiting period and for the first 3 months averages 29 hours per week. After the 2.5 month administrative period ends, the employer is not required to offer the employee benefits during the following year; however, the employee is already in the standard measurement period for the following year so the employer needs to continue measuring whether the employee is trending to full time or part time.
If the second employee had worked 31 hours per week during the initial measurement period, the employer would be required to treat the employee as full time for the standard measurement period. This means the new hire would be considered full time for a year.
Yes, it’s complicated, but companies like Tango make tracking this and integrating with your timekeeping, benefits, and payroll systems simple. More information about this is here.
(This is a 2014 update of our most popular blog post.) There are several things you should be aware of if both you and your spouse are interested in selecting a High Deductible Health Plan (HDHP) in your respective workplaces and making contributions to a Health Savings Account (HSA). One would assume, as a lot of married couples do, that each of you can each contribute up to your respective IRS contribution limit as determined by your coverage.
For example, let’s say one of you has self-only coverage and the other one has family coverage. The self-only contribution limit ($3,300) plus the family contribution limit ($6,550) should make your combined contribution limit $9,850, right? Wrong.
The contribution limit is determined by the Internal Revenue Service (IRS) and the IRS views spouses as one tax unit, even if filing as “married filing separately,” so if either spouse is eligible for a family contribution limit, that is intended to cover both spouses. The IRS suggests that the family limit be split evenly between the spouses, unless a separate allocation is desired.
These rules raise an interesting question: should a married couple open only one HSA and not have to worry about exceeding the contribution limit by not having to compare and track two HSAs? The best practice, in most cases, is for each of you to open your own account, because this may increase your savings. If you only have one account, then one spouse could miss out on employer contributions, pre-tax contributions/reduction taxable income, and catch-up contributions if one of the spouses is 55 or older (catch-up contributions are available for each HSA holder so long as they have their own account). Employers cannot facilitate pre-tax contributions to an account not owned by the employee.
For example, Keith and Lora are married, work for different employers and both decide to participate in a HDHP with their respective employers. They decide that Lora will open an HSA and Keith will not. Lora has family coverage to include their children, so her contribution limit is $6,550 for 2014. Keith has insured only himself and sees no reason to open his own account. In this scenario, Lora is the only one that can take advantage of contributing funds to her HSA through pre-tax payroll deductions — which not only saves her federal taxes but saves her and her employer payroll taxes as well.
The main disadvantages of this strategy come in two specific scenarios. First, if Keith reaches the age of 55 before Lora, he will forfeit the opportunity to make an additional $1,000 catch up contribution unless he has his own HSA. Second, if Keith’s employer makes contributions to its employees’ HSAs then Keith will miss out on those funds as well.
The advantages of only opening an HSA for Lora are more minor and include: (i) only paying one set of account fees, which are often covered by the employer anyway, and (ii) only having paperwork for one account.
In conclusion, if both spouses are going to select a HDHP through their employers and are HSA-eligible, then they should probably each open their own HSA, figure out their collective contribution limit, and decide how they will split that limit between the two accounts to avoid over-contributing.
Flexible Spending Arrangements (FSAs) have seen a number of changes in recent years, from the addition of the grace period in 2005 to the elimination of out-of-pocket drugs and the $2,500 yearly cap in 2012. In an effort to provide more flexibility the Treasury announced changes that introduces a new “Carryover” option to cut back wasteful end-of-the-year spending and the risk of losing funds at the end of the year.
The Treasury specifically outlined rules on how the FSA will work with existing programs:
● Companies may amend or create new FSA programs that allow for up to $500 to be carried over into the following plan year. Amendments to existing programs must be made by the last day of the plan year.
● Grace periods (which allows for up to 2.5 months of newly-incurred expenses in a plan year to be paid by funds in a previous plan year) are not allowed concurrently with a Carryover period. If a Carryover period is elected for next year, the grace period must also be eliminated and this change applies for all participants in the plan.
● Employees who use the Carryover period can still elect up to $2,500 for the new year, at a maximum allowing up to $3,000 in FSA funds to be used for a single plan year.
● Runout periods (which allows for claims in previous plan years to be reimbursed in new plan year) are still allowed with Grace or Carryover periods. While the Runout period allows for the entire remaining FSA balance to be used to pay for claims incurred in the previous grace period or plan year, the Carryover only allows up to $500 of the remaining FSA balance to be used on claims paid in the following plan year.
Carryover Period Warning for Companies Driving HDHP/HSA Adoption
The new Carryover period creates even more conflict with organizations that are focused on increasing High Deductible Health Plan (HDHP) and Health Savings Account (HSA) adoption since employees entering Carryover periods are ineligible for HSA contributions for an entire year.
The Grace period already causes extra administrative burden as employees who enter a Grace period must wait until the first of the month following the end of the Grace period in order to contribute to the HSA. The Carryover compounds this delay for an entire year and could lead to drastic employee dissatisfaction if they are preventing from contributing to the HSA during the entire year.
Balance reporting from your FSA administrator will become extremely important. (This is why Tango customers will be receiving balance reporting and can receive help with employee notifications to help those enrolled in the HDHP from losing out because of a few dollars in their FSA.)
A Potential Boon for HDHP/HSA and Limited FSAs
Limited FSAs allow for only dental and vision expenses to be reimbursed and we find they play alongside HSAs very well for even more tax savings. Increased flexibility with FSAs lowers the risk of losing funds when contributing to a Limited FSA and HSA since the Limited FSA balance will carry over into the following year.
At a minimum, employees could elect to fund their Limited FSA with $500 and then have two full years to use the funds without losing them; if they use the funds in the first year, they can elect another $500 dollars and still have 2 years to spend the funds.
Plan design, documentation and the cost of a Carryover HSA plan become very important, in addition to proper education of the employee population to prevent mistakes in the planning and execution of a benefit plan that includes a Carryover HSA, which must be balanced against the usefulness of such an arrangement.