Consumer Directed HealthSelect Health Savings Accounts
HSAs are “tax-advantaged” or “tax-free” in that they can help you save on taxes. There are three ways an HSA can help you save on taxes:
An HSA can lower your taxable income because contributions to the account, up to a certain amount, are made with tax-free dollars. If you’re an active employee, the contributions can be deducted from your paycheck before taxes are taken out. If you’re an active employee or a retiree, you can make contributions directly to your account and then deduct those contributions when you file your income tax return.
Any interest and investment earnings your HSA realizes are not taxed.
You do not have to pay taxes on any withdrawals from your HSA that are used to pay for qualified medical expenses.
Both HSAs and health care FSAs help lower your taxable income by letting you save money tax-free to pay for qualified health expenses. But there are some important differences. With an HSA:
You must be enrolled in a high-deductible health plan, like Consumer Directed HealthSelect.
The State of Texas will make monthly contributions to the accounts of eligible employees and retirees.
You own your account, so you keep your funds even if you change health plans or go to a different job. (NOTE: If you leave state employment, you will be responsible for paying the monthly HSA administrative fee on your HSA. The fee will be deducted from your remaining balance each month.)
All the money in your account carries over from year to year, so you can choose to save the money for qualified health expenses in the future.
You don’t need approvals for reimbursements or withdrawals. Just keep in mind that if you use the money for anything but qualified health expenses (as defined by the IRS), you could have to pay taxes on that money, as well as a penalty to the IRS. (It’s still important to keep your receipts for the health costs you pay for with HSA funds, in case you need to prove to the IRS that you spent your funds on eligible expenses.)
You have access only to the money that’s in your account.
Employees can change their pre-tax paycheck contributions at any time during the plan year.
The annual maximum contribution to an HSA is higher than the annual maximum contribution to an FSA. The IRS sets the annual maximums for both HSAs and FSAs. See the chart under Question 27 for HSA annual maximums.
You can contribute to an HSA if you’re working or retired (but not enrolled in Medicare).
To enroll in an HSA, or make or receive contributions to an HSA, you must be enrolled in a high-deductible health plan (HDHP) like Consumer Directed HealthSelect and you must not be enrolled in Medicare. You cannot enroll in, make contributions to or accept contributions to an HSA if:
- You are covered by any other non-HDHP, such as a spouse’s plan, that provides any benefits covered by your HDHP with Consumer Directed HealthSelect. Exceptions include coverage like vision or dental.
- You are claimed as a dependent on someone else’s tax return.
- You receive benefits under TRICARE or TRICARE for Life.
- You have a health care flexible spending account (health care FSA), like a TexFlex health care account, in the same plan year. For information about enrolling in Consumer Directed HealthSelect if you have funds remaining in a TexFlex health care flexible spending account, please see Question 26.
If you’re an active employee, you can have contributions taken from your paycheck pre-tax and deposited in your HSA. You can set up automatic paycheck contributions through your ERS OnLine account or with help from your HR or Payroll department. These contributions will typically be in your HSA within seven to 10 business days after your paycheck is issued to you.
If you’re an employee or retiree, you can deposit money directly to your account, post-tax. The contributions can then be claimed as deductions when you file your annual tax return. It’s up to you, as the account holder, to make sure the total deposits to your HSA don’t go over the IRS’ annual maximum. If you go over the annual maximum, you could have to pay taxes on the additional deposits, as well as a penalty to the IRS.
In general, an employee or retiree who gets the state’s contribution to their health insurance premium and is not eligible for Medicare is eligible to get the state’s contribution to an HSA. Check with your HR department to make sure you’re eligible to get the state’s HSA contribution. You also should review IRS regulations, or talk to a financial or tax advisor to make sure you’re eligible to open an HSA under IRS rules.
Funds are available once they’re deposited in the HSA. Funds cannot be spent before they’re actually in the account, or you might incur a fee for insufficient funds. This is different from a health care or limited-purpose flexible spending account, which lets you use money upfront that’s pledged to be deposited later. (You can check your HSA balance 24/7 on the Optum Bank website or with the Optum Bank app.)
If you elect Consumer Directed HealthSelect during Summer Enrollment and open your HSA by early September, the first state deposit into the account will typically occur seven to 10 business days after you get your September 30 retirement payment or your October 1 paycheck.
If you’re an active employee and want pre-tax contributions deducted from your October 1 paycheck, you will need to set up those deductions in August so they can be withheld from your September paycheck (issued October 1). You can set up paycheck deductions in your ERS OnLine account or with help from your HR or Payroll department.
To avoid paying taxes and incurring a penalty, you can fill out an Excess Contribution and Deposit Correction Request Form (available on the Forms page of the Optum Bank website) and submit it to Optum Bank to have excess funds returned to you.
If you enroll in Consumer Directed HealthSelect for the upcoming plan year (starting September 1) and have $25 to $500 left in a TexFlex health care account at the end of the current plan year (after August 31), ERS will roll that money into a TexFlex limited-purpose FSA for use on qualified vision and dental expenses. Only people participating in Consumer Directed HealthSelect can participate in the TexFlex limited-purpose FSA.
If you have less than $25 left in your TexFlex health care account after August 31, you can roll that money into a TexFlex limited-purpose FSA, but you will have to set up the FSA and transfer the money yourself. ERS will not do it for you.
If you enroll in Consumer Directed HealthSelect for the upcoming plan year (starting September 1) and have $25 to $500 left in a TexFlex health care account at the end of the current plan year (after August 31), ERS will roll that money into a TexFlex limited flexible spending account (LFSA). Money in an LFSA can be used only on qualified vision and dental expenses. Only people participating in Consumer Directed HealthSelect can participate in the TexFlex LFSA.
If you have less than $25 left in your TexFlex health care account after August 31, you can roll that money into a TexFlex LFSA, but you will have to set up the LFSA and transfer the money yourself. ERS will not do it for you.
Employees and retirees enrolled in Consumer Directed HealthSelect can contribute tax-free funds to their HSAs – up to an amount set by the IRS each calendar year. Please see the table below for 2021 maximum contributions. These maximums include contributions from all sources, including the State of Texas and the account holder. Only people participating in Consumer Directed HealthSelect can make tax-free contributions or accept contributions to their HSAs.
HSA Contributions and Limits*
|Calendar Year 2021
January 1 – December 31, 2021
|Individual account||Family account
(member plus any number of dependents)
|Annual maximum contribution allowed from all sources||$3,600||$7,200|
|Annual state contribution||$540 ($45 monthly)||$1,080 ($90 monthly)|
|Annual maximum participant contribution||$3,060||$6,120|
NOTE: Members who are 55 years or older can have an additional "catch up" contribution of up to $1,000 per year, for 2021.
*HSA contributions and limits may change from year to year, or based on eligibility requirements and the participant’s age. Maximums are set by the IRS and include all contributions -- both pre-tax and post-tax -- to an HSA.
When savings in your HSA reach more than $2,000, you can decide how to invest any funds over $2,000. Optum Bank has a variety of investment options. Investment earnings and interest aren’t taxed. It’s important to keep in mind that invested funds can lose value.