| HSAs have a "triple" tax advantage from a federal | | | | federal program, each state decides whether to: a) |
| tax standpoint. Individuals receive full tax advantages | | | | comply with the federal guidelines, or; b) establish their |
| for HSAs on their Federal Income Tax return (or | | | | own state guidelines regarding the tax treatment of |
| through a salary reduction program in certain | | | | HSAs. As a result, some income that may be tax-free |
| employer-sponsored settings) regardless of particular | | | | at the federal level may not be tax-free at the state |
| state's tax treatment of HSAs. | | | | level. |
| An account beneficiary may take an above-the-line | | | | Many states harmonize their tax treatment with the |
| deduction (i.e. the amounts may be used to determine | | | | federal government. Those states include Arizona, |
| the individual's adjusted gross income before any | | | | Arkansas, Colorado, Connecticut, Delaware, Georgia, |
| itemized or standard deductions are considered) for | | | | Hawaii, Idaho, Iowa, Indiana, Kansas, Kentucky, |
| contributions made to an HSA during any month of the | | | | Louisiana, Maryland, Missouri, Mississippi, New York, |
| individual's taxable year that the individual is eligible. The | | | | Montana, Nebraska, New Mexico, Oklahoma, North |
| permitted deduction cannot exceed the sum of the | | | | Carolina, North Dakota, Pennsylvania, South Carolina, |
| "monthly limitations" for such months. In 2006, the | | | | Oregon, Rhode Island, Virginia, Utah and Vermont. |
| monthly limitation for any month is 1/12th of the | | | | Other states, however, treat HSAs differently from |
| following amounts: | | | | the federal government, at least for tax purposes. The |
| - For those with single coverage on the first day of | | | | following states have indicated that legislation must be |
| the month, the lesser of the annual deductible under | | | | passed at the state level before HSAs receive a tax |
| the HDHP or $2,700. | | | | benefit at the state level: California, Illinois, Maine, |
| - For those with family coverage on the first day of | | | | Massachusetts, Michigan, Minnesota, New Hampshire, |
| the month, the lesser of the annual deductible under | | | | New Jersey, Ohio, Washington DC, Wisconsin, West |
| the HDHP or $5,450. | | | | Virginia and Tennessee. New Hampshire and |
| Funds in an HSA grow on a tax-deferred basis, and | | | | Tennessee do not tax income, but do tax dividends |
| distributions from an HSA are tax-free so long as the | | | | and interest. Alabama has not indicated their position |
| funds are used for qualified (as defined by Section | | | | regarding state-level tax benefits for HSAs. Finally, |
| 213d of the IRC) health care expenses. | | | | some states are not affected by federal income tax |
| How does state tax treatment of HSAs differ from | | | | guidance vis-Ã -vis HSAs: those states include |
| federal tax treatment? | | | | Alaska, Florida, Nevada, South Dakota, Texas, |
| HSAs (and the enabling legislation) are federal. As a | | | | Washington and Wyoming. |