Can an HSA Have Authorized Users?

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by Dennis Zuehlke, CIS, CISP

We have a health savings account (HSA) owner requesting that we issue HSA debit cards to his wife and three college-age children. The HSA is set up in the HSA owner’s name. May we issue HSA debit cards to his wife and three children if they are not listed on the account?

Yes. The IRS provided guidance in Notice 2008-59 stating that “although an HSA is an individual account, an HSA account beneficiary can designate other individuals to withdraw funds pursuant to the procedures of the trustee or the custodian of the HSA.”

If your financial organization chooses to allow the HSA owner to authorize someone else to withdraw from his HSA, then as the trustee or custodian of the HSA, you can set the rules surrounding account access by other individuals. For example, you could allow authorized users to access the account only by use of a debit card, rather than checks or over-the-counter transactions. And if your organization has a policy not to issue debit cards to anyone under age 18, your organization can apply the same policy to HSA debit card issuance.

As a trustee or custodian are there issues that we should be aware of before we allow authorized users on an HSA?

Yes. Unlike an IRA, an HSA is more transactional in nature and the assets may be used to pay for expenses incurred other than by the HSA owner, so permitting authorized users on an HSA is a common industry practice. The risk with an HSA is that the HSA owner may incur negative tax consequences when authorized users make withdrawals that are not used for qualified medical expenses. And should an authorized user engage in a transaction that causes an overdraft in the HSA—which is covered by your financial organization—the transaction may be viewed as a prohibited transaction and the HSA would cease to be an HSA.

Ascensus recommends that your authorized user agreements have the HSA owner acknowledge that she assumes liability for all transactions on the account, even if those transactions are made by authorized users, and were not authorized by the HSA owner. The agreements should also provide a process for the HSA owner to revoke an authorized user's access to the account, allowing sufficient time for the financial organization to act on the request.

Are authorized users on an HSA able to engage in other HSA transactions besides withdrawing funds from the HSA?

The IRS permits an HSA owner to authorize someone else to withdraw funds from the HSA, and most financial organizations limit authorized users to withdrawals, most often by use of an HSA debit card. Your financial organization’s authorized user agreement should clearly define the scope of the authorized user’s authority. A power of attorney is generally required if an HSA owner wants someone else to be able to engage in other types of transactions on the HSA.

How are HSA distributions made by authorized users treated for tax purposes?

Distributions made by authorized users on the account are reported in the name and Social Security number of the HSA owner. Distributions are subject to tax if not used to pay for qualified medical expenses for the HSA owner, the owner’s spouse, or owner’s dependents.

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