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