Health Savings Accounts and Taxation

This week, we bring you an update and notification regarding health care reform and health savings accounts. In the rush to cover adult children as part of health care reform, amendments to the tax code were made regarding group health plans, flexible spending accounts, and health reimbursement accounts, but health savings accounts were, sadly, overlooked.

What does this mean?

Unfortunately, expenses incurred by an adult child cannot currently be reimbursed or paid for with health savings account funds. However, keep in mind that the distribution process is strictly between the employee and the health savings account. There is no mechanism to deny the transaction or make it invalid; an IRS audit could uncover this discrepancy.

What could happen?

The tax code could still be amended retroactively to "fix" this issue. It’s our hope that this occurs, but until then, you might consider relaying this information to your employees who have health savings accounts.

What if I have additional questions?

Please remember that health savings accounts are employee owned. If your employees have questions, please direct them to their tax advisor.