April Edition

HealthEquity Newsletter

Protecting Yourself from an IRS Audit

Tax season is over, but don’t throw away those receipts quite yet. No matter how honest and careful you were on your income tax report, there is still a chance the IRS may select you to be one of the unlucky two percent of those filing tax returns to be audited this year.

Being audited by the IRS is stressful and nerve-racking for even the most honest tax-payer. While it is important to be honest when filing your taxes, it is even more important to keep the records and receipts you need to prove your honesty in the case of an audit. This is especially true if you have a health savings account (HSA). HealthEquity recommends you take the following steps to protect yourself and your HSA balance in the case of an IRS audit.

• Only use your HSA funds for qualified medical expenses. The IRS defines qualified medical expenses in their Publication 502 which is available at http://www.irs.gov/publications/p502/ar02.html.
  
• Keep copies of your itemized receipts and healthcare bills. If you are audited, you will need copies of these documents to prove that the money withdrawn from your account was used to pay for legitimate expenses. Credit card slips are not enough to satisfy the IRS, so make sure your receipts are itemized. It is a good idea to keep copies of your records for at least three years.
  
• If you discover that you have spent your money on ineligible expenses, you may repay the distribution no later than April 15^th the first year you knew, or should have known, about the mistake. If you don’t refund the account, that money is no longer tax-exempt. It must be reported as income and a further 10 percent penalty will be required by the IRS.
  
• Keep your account contributions within IRS limits. In 2008, the combined maximum you and your employer can contribute to your account if you have individual health coverage is $2,900. If you have family coverage you can contribute up to $5,800. If you are over 55 you can contribute an additional $900 in catch-up contributions.
  
• If you have over contributed to your account, the money and any interest earned on it must be withdrawn and added to your adjusted income before you file taxes for that year. If you don’t catch the mistake until after your taxes are filed, you will have to pay the additional 6 percent tax as well as the income tax on the funds.
  
• Keep copies of your account statements and records of any repayment of over-contributions in case of an audit. It is important that if you did over-contribute that you can prove you set things right and avoid getting penalized.
  

Protecting yourself and your HSA during an audit doesn’t have to be stressful as long as you follow the rules and keep copies of your records. As long as you’ve done nothing wrong and can prove it, you have no reason to worry about an audit.

Savings Tip of the Month

When you or one of your loved ones is sick or injured, the last thing you want to do is research prices. You want to get care as quickly as possible and aren’t worried about the cost… until you get the bill a month later.

Familiarize yourself with the fees and policies of clinics, doctors, and hospitals in the area now, before you get sick. Check with your health insurance company to see who is in your network and if they have any ratings or recommendation system. Call around and talk to the healthcare providers in your area. Ask your friends what kind of experiences they have had and who they would recommend. Do the research now and when an emergency does come, you will know exactly where to go.

Does Your Account Have a Beneficiary?

By taking a few minutes to designate a beneficiary, you could help your spouse save tax-free money for their future healthcare expenses!

In the unfortunate event that something happens to you, if no beneficiary is listed for your HSA the account will lose its tax benefits. The balance of the account will be included with your estate and the person who inherits the money from the account will have to pay taxes on the balance.

If you name your surviving spouse as your beneficiary, the HSA will remain an HSA upon your death. The ownership will transfer, with no taxes accessed on the funds, and your spouse can continue to use this account to pay for healthcare expenses.  Unfortunately, this benefit only applies to spouses. If someone other than your spouse is listed as the beneficiary, the account will cease to be an HSA and be treated as taxable income.

To name a beneficiary for your account please go to your Personal Healthcare Financial Services Desktop and select ‘Forms and Documents’. Download the Beneficiary Designation Form and submit it to HealthEquity.