What you need to know
Health Savings Accounts, or HSAs, are like personal savings accounts that are tax-free as long as you use the money to pay medical, dental, vision, and prescription expenses. You control the money in your HSA. The funds can be used to pay current eligible health care expenses, or you can invest your money to use later, such as during retirement.
4 ways you win with an HSA
- It’s a tax-savings trifecta! With an HSA, you save on taxes three ways:
- The money you contribute to your HSA is made on a pretax basis, before federal and state1 taxes are calculated. For 2022, the maximum amount you can contribute to your HSA according to IRS limits is $3,650 for individual coverage or $7,300 for family coverage. Keep in mind that you can change your HSA contribution amounts throughout the year as long as you don’t exceed the annual limits.
- Your account can grow tax-free.
- You don’t pay taxes on the money you take out to pay for qualified health care expenses.
- Your HSA belongs to you – always. Your account balance is yours to keep and use. It remains yours even if you leave BAE Systems, and there’s no use-it-or-lose-it rule like the one with FSAs. As a result, you can use the HSA to save for future health expenses, including those in retirement.
- Catch up on savings! If you are age 55 or older, you can save even more in your HSA. The IRS allows you to contribute an additional $1,000 to your account in 2022.
- Once your account balance reaches $1,000, you can invest your money in a variety of investment options to help your savings grow.
1 In California and New Jersey, HSA contributions are subject to state tax.
Are you eligible to contribute to an HSA?
If any of these situations apply to you this year, you are not eligible to contribute to an HSA:
- I will be covered by Medicare or TRICARE.
- I will be covered by another non-high deductible plan (a plan with a deductible less than $1,400 for individuals and $2,800 for families, based on 2022 limits).
- I will receive reimbursements for medical expenses from someone else’s general purpose flexible spending account.
- I will be claimed as a dependent on someone else’s tax return.
Special note: You are still eligible to contribute to an HSA if you are not covered by Medicare but your spouse is.
Growing your HSA
If you're enrolled in the HSA Primary or HSA Plus plan, you can make pretax* contributions to your account. The IRS limits how much can be contributed to your account each year from all sources. If you are or will be age 55 during the year, you can contribute an additional $1,000. Here’s how the math works for 2022:
|Individual coverage||Family coverage|
|Your 2022 maximum contribution (based on annual IRS maximums)||Under age 55: $3,650
Age 55+: $4,650
|Under age 55: $7,300
Age 55+: $8,300
HSA contributions and earnings are not subject to federal taxes; however, a few states treat the contributions as taxable income. Those employees residing in California and New Jersey will have applicable state taxes withheld from their contributions each pay period.
Note: If you are married and your spouse is also enrolled in an HSA, your combined HSA contributions may not exceed IRS limits.
Using your HSA
Manage your account online through Smart-Choice Accounts, a website you access through BenefitsNavigator that lets you check your balance, submit a claim for reimbursement, check claim reimbursement status, etc., online at any time.
Pay for expenses directly from your HSA with your Smart-Choice card (a debit card) that you’ll receive shortly after enrolling. After receiving medical services, you will receive an Explanation of Benefits from Cigna showing the portion of the provider’s bill that you’re responsible for paying. You can use your Smart-Choice card to make a payment directly from your HSA to the provider.
Tip: Keep receipts for any expenses you pay with your HSA. A good practice is to store them with the same year’s tax return information, in case you are audited by the IRS.
A few more details about HSAs
Restrictions on Flexible Spending Accounts (FSA) participation
While enrolled in an HSA-compatible plan, you can participate only in a Limited Purpose Health Care FSA that can be used to pay only dental and vision expenses, not medical expenses.
Not eligible to contribute to an HSA?
If you plan to enroll or are currently enrolled in Medicare, or enrolled in TRICARE, you are not eligible to contribute to an HSA. However, you are eligible to enroll in a full Health Care Flexible Spending Account (FSA) instead of a Limited Purpose FSA. This means that you will be able to use your FSA funds for qualified expenses such as medical, dental, vision, and prescriptions.
Make sure you use your HSA only for qualified expenses for you and eligible family members. If you use your HSA to pay nonqualified expenses, you’ll pay taxes plus an additional 20% penalty if you’re under age 65.
You can use your HSA balance to pay for expenses for yourself and certain family members (for example, a child who can be claimed as a dependent on your tax return). Keep in mind that while you can cover adult children (up to age 26) on your health plan, they may not be considered dependents for HSA purposes, and you might not be able to use your HSA balance dollars to pay for services provided to that child.
Withdrawals after age 65
After you reach age 65 or become disabled, you may withdraw money from your HSA for nonmedical purposes without penalty. These withdrawals will be subject to normal income taxes.
The HSA is not part of BAE Systems employer-sponsored benefit plans and is not subject to the Employee Retirement Income Security Act of 1974 (ERISA). The HSA is provided to you solely for your convenience.
Wellness Incentive Program reimbursements
With significantly reduced usage of the Wellness Incentive Program in recent years, this program ended on December 31, 2021.
Any incentives earned or processed by Cigna in December will be paid directly to you through payroll and be reduced by applicable taxes.
These payroll payouts will be made in March 2022, as long as you are still a BAE Systems employee.