§ 223. Health savings accounts
(a)
Deduction allowed
In the case of an individual who is an eligible individual for any month during the taxable year, there shall be allowed as a deduction for the taxable year an amount equal to the aggregate amount paid in cash during such taxable year by or on behalf of such individual to a health savings account of such individual.
(b)
Limitations
(1)
In general
The amount allowable as a deduction under subsection (a) to an individual for the taxable year shall not exceed the sum of the monthly limitations for months during such taxable year that the individual is an eligible individual.
(2)
Monthly limitation
The monthly limitation for any month is 1/12 of—
(3)
Additional contributions for individuals 55 or older
(A)
In general
In the case of an individual who has attained age 55 before the close of the taxable year, the applicable limitation under subparagraphs (A) and (B) of paragraph (2) shall be increased by the additional contribution amount.
(B)
Additional contribution amount
For purposes of this section, the additional contribution amount is the amount determined in accordance with the following table:
For taxable years
The additional
beginning in:
contribution
amount is:
2004
$500
2005
$600
2006
$700
2007
$800
2008
$900
2009 and thereafter
$1,000.
(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—
(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
(6)
Denial of deduction to dependents
No deduction shall be allowed under this section to any individual with respect to whom a deduction under section
151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins.
(7)
Medicare eligible individuals
The limitation under this subsection for any month with respect to an individual shall be zero for the first month such individual is entitled to benefits under title XVIII of the Social Security Act and for each month thereafter.
(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—
(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
(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—
(B)
Certain coverage disregarded
Subparagraph (A)(ii) shall be applied without regard to—
(ii)
coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term 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—
(2)
High deductible health plan
(A)
In general
The term “high deductible health plan” means a health plan—
(B)
Exclusion of certain plans
Such term does not include a health plan if substantially all of its coverage is coverage described in paragraph (1)(B).
(C)
Safe harbor for absence of preventive care deductible
A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for preventive care (within the meaning of section 1871 of the Social Security Act, except as otherwise provided by the Secretary).
(D)
Special rules for network plans
In the case of a plan using a network of providers—
(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—
(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.
(2)
Qualified medical expenses
(A)
In general
The term “qualified medical expenses” means, with respect to an account beneficiary, amounts paid by such beneficiary for medical care (as defined in section
213
(d) [1] for such individual, the spouse of such individual, and any dependent (as defined in section
152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of such individual, but only to the extent such amounts are not compensated for by insurance or otherwise. Such term shall include an amount paid for medicine or a drug only if such medicine or drug is a prescribed drug (determined without regard to whether such drug is available without a prescription) or is insulin.
(B)
Health insurance may not be purchased from account
Subparagraph (A) shall not apply to any payment for insurance.
(3)
Account beneficiary
The term “account beneficiary” means the individual on whose behalf the health savings account was established.
(e)
Tax treatment of accounts
(1)
In general
A health savings account is exempt from taxation under this subtitle unless such account has ceased to be a health savings account. Notwithstanding the preceding sentence, any such account is subject to the taxes imposed by section
511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).
(f)
Tax treatment of distributions
(1)
Amounts used for qualified medical expenses
Any amount paid or distributed out of a health savings account which is used exclusively to pay qualified medical expenses of any account beneficiary shall not be includible in gross income.
(2)
Inclusion of amounts not used for qualified medical expenses
Any amount paid or distributed out of a health savings account which is not used exclusively to pay the qualified medical expenses of the account beneficiary shall be included in the gross income of such beneficiary.
(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.
(4)
Additional tax on distributions not used for qualified medical expenses
(A)
In general
The tax imposed by this chapter on the account beneficiary for any taxable year in which there is a payment or distribution from a health savings account of such beneficiary which is includible in gross income under paragraph (2) shall be increased by 20 percent of the amount which is so includible.
(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
Paragraph (2) shall not apply to any amount paid or distributed from a health savings account to the account beneficiary to the extent the amount received is paid into a health savings account for the benefit of such beneficiary not later than the 60th day after the day on which the beneficiary receives the payment or distribution.
(B)
Limitation
This paragraph shall not apply to any amount described in subparagraph (A) received by an individual from a health savings account if, at any time during the 1-year period ending on the day of such receipt, such individual received any other amount described in subparagraph (A) from a health savings account which was not includible in the individual’s gross income because of the application of this paragraph.
(6)
Coordination with medical expense deduction
For purposes of determining the amount of the deduction under section
213, any payment or distribution out of a health savings account for qualified medical expenses shall not be treated as an expense paid for medical care.
(7)
Transfer of account incident to divorce
The transfer of an individual’s interest in a health savings account to an individual’s spouse or former spouse under a divorce or separation instrument described in subparagraph (A) of section
71
(b)(2) shall not be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest shall, after such transfer, be treated as a health savings account with respect to which such spouse is the account beneficiary.
(8)
Treatment after death of account beneficiary
(A)
Treatment if designated beneficiary is spouse
If the account beneficiary’s surviving spouse acquires such beneficiary’s interest in a health savings account by reason of being the designated beneficiary of such account at the death of the account beneficiary, such health savings account shall be treated as if the spouse were the account beneficiary.
(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—
(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
The amount includible in gross income under clause (i) by any person (other than the estate) shall be reduced by the amount of qualified medical expenses which were incurred by the decedent before the date of the decedent’s death and paid by such person within 1 year after such date.
(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—
(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 1992” in subparagraph (B) thereof—
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.
(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.
[1] So in original. Probably should be followed by a second closing parenthesis.