Tax & AccountingComplianceMarch 28, 2019

Recipients of VA benefits and health savings account contribution eligibility



Overview

Several variables, including the requirement of being covered by a Health Savings Account (HSA) eligible high deductible health plan (HDHP), determine whether an individual is eligible to make an HSA regular contribution. Furthermore, with few exceptions, to make an HSA regular contribution an individual that is covered by an HSA eligible HDHP cannot be covered by a non HDHP (i.e., a disqualifying plan).

Receipt of veterans benefits

An individual who is an otherwise HSA eligible individual receiving Department of Veterans Affairs (VA) medical benefits, other than disregarded coverage (e.g., vision or dental) or preventive care, is ineligible to make an HSA regular contribution for the month of and the two months following the month he or she received medical benefits through the VA. The reason for this is because receipt of VA medical benefits is considered coverage under a non HDHP.

An exception to receipt of veterans benefits since 2016

Since January 2016, a provision added by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 [IRC section 223(c)(1)(C)] states that receipt of VA hospital care or medical services for a service-connected disability (i.e., disability incurred or aggravated in the line of duty in active military, naval, or air service) is considered permissible coverage and would not have an effect on HSA regular contribution eligibility. The Internal Revenue Service (IRS) further simplified the administration of this rule when it released Notice 2015-87. In this Notice, Q&A-20 addresses the administrative complication associated with the service-connected disability determination and states “…for purposes of this rule, any hospital care or medical services received from the VA by a veteran who has a disability rating from the VA may be considered to be hospital care or medical services under a law administered by the Secretary of Veteran Affairs for service-connected disability”. Thus, veterans with a disability rating and receiving VA hospital care and medical services will be eligible to make HSA regular contributions for the months surrounding such care and services, while other veterans will not.

Conclusion

Several variables determine whether an individual is eligible to make an HSA regular contribution. An individual must ultimately determine his or her own HSA regular contribution eligibility and limit as it is not an HSA custodian’s or trustee’s responsibility. As always it is recommended that anyone interested in making an HSA regular contribution seek guidance from an individual that is fully familiar with the eligibility rules.

Background:

  1. IRC section 223(c)(1)(C) Special rule for individuals eligible for certain veterans benefits. —An individual shall not fail to be treated as an eligible individual for any period merely because the individual receives hospital care or medical services under any law administered by the Secretary of Veterans Affairs for a service-connected disability (within the meaning of section 101(16) of title 38, United States Code).
  2. USC title 38, 101(16) The term “service-connected” means, with respect to disability or death, that such disability was incurred or aggravated, or that the death resulted from a disability incurred or aggravated, in line of duty in the active military, naval, or air service.

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Steve LeRoux
Senior Specialized Consultant, Tax Advantaged Accounts
With more than 36 years of experience, Steve has worked closely with hundreds of financial organizations to help them create, implement, and maintain their tax-advantaged accounts program. Steve also has an extensive background in working with employer qualified plans.
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