With the tax-filing deadline just around the corner and the ripples of changes from last year's health care reform law still being felt, this is a busy season for employers and employees alike.
Brokers and advisors can help ease the stress by explaining to their clients how to navigate the rules so that employees can get the most value from their health savings accounts and flexible spending accounts.
Tax Tips
Brokers should remind employers that April 18 – the 2010 tax-filing deadline – is a key date. That is the last day that eligible employees can open and make tax-deductible contributions to their health savings accounts (up to the limits set by the IRS) for 2010. These contributions can be used to pay for qualified medical, dental and vision expenses, such as doctor visits, prescriptions and hospital visits, to name only a few.
Recommended For You
For 2010, HSA contributions are tax-deductible up to either:
- $3,050 for those with individual coverage
- $6,150 for those with family coverage
For employees who were 55 or older in 2010 and not eligible for Medicare, there's an extra tax break. They can make an additional $1,000 deductible contribution for 2010. For example, employees with family coverage can contribute up to $7,150 (the $6,150 contribution limit plus the additional contribution of $1,000).
Of course, to be eligible for the deduction, employees must have been covered by an HSA-qualifying health plan last year.
Tax Forms
As they prepare their taxes, employees should be reminded of three tax forms they may need.
- IRS Form 1099-SA. This form displays the total distributions that were made from the employee's HSA during the year. A copy of this form, which is typically mailed to employees in late January by their HSA custodians, should be retained by employees for their records. Employees who had no distributions will not receive this form.
- IRS Form 8889. This form is filed with the employee's income tax returns to report year-to-date contributions and distributions from his or her HSA.
- IRS Form 5498-SA. This form notifies employees of the contributions made to their HSAs in 2010. Since contributions can be made for last year until April 18, 2011, this form is usually sent out in May. Again, employees should keep a copy.
Remember too, that some states tax HSAs differently, so employees should check with their state's department of revenue services or their tax advisors for details.
New FSA Rules
Your clients – and their employees – may also be confused about the new rules affecting FSAs.
As of Jan. 1, employees can no longer use their health care FSAs for over-the-counter (OTC) medicines or drugs without a prescription. This change is part of last year's health reform law (and also applies to HSAs and health reimbursement accounts).
Insulin, prescription medicines and some OTC supplies – such as bandages, crutches,
blood sugar test kits and contact lens solution – will continue to be eligible, if the company's health care FSA plan allows. Since employers may limit what items are eligible for FSA purchase or reimbursement, employees should be reminded to check their benefit plan booklets for details.
Note that there will still be limits on the amount of OTC items that employees can be reimbursed for from their FSAs. They will only be reimbursed for a reasonable quantity of an eligible OTC expense as determined by the plan administrator.
Looking ahead, brokers should advise employers to keep communicating to employees about their tax-advantaged health accounts so employees get the maximum benefits this year and plan well for the next.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
