Is an Ohio Medical Savings Account the Same as an HSA?
Understand the key differences between Ohio Medical Savings Accounts and HSAs, including setup, tax implications, and eligible expenses.
Health savings options can be confusing, especially when different accounts have similar names but distinct rules. Ohio Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs) both help individuals save for medical expenses, but they are not the same. Understanding their differences is important for making informed financial decisions.
Setting Up an Account
Ohio MSAs are available only to Ohio residents, while HSAs are federally regulated and open to anyone in the U.S. with a qualifying high-deductible health plan (HDHP). Ohio MSAs follow state-specific rules, whereas HSAs must comply with IRS regulations.
To open an Ohio MSA, individuals must use a financial institution within the state, such as a bank or credit union. These accounts are not as widely available as HSAs, which can be opened through national banks and investment firms. Unlike HSAs, Ohio MSAs do not require an HDHP, making them accessible to individuals with various types of health coverage.
Both accounts require the designation of a beneficiary. For HSAs, a surviving spouse can inherit the account tax-free, while non-spouse beneficiaries may face tax consequences. Ohio MSAs follow state inheritance laws, which may differ in tax treatment.
Contribution Regulations
HSA contribution limits are set by the IRS, with 2024 caps at $4,150 for individuals and $8,300 for families. Those 55 or older can contribute an additional $1,000. Ohio MSAs allow contributions up to the account holder’s annual healthcare expenses rather than a fixed cap.
Employers can contribute to HSAs, with contributions being tax-deductible for businesses and tax-free for employees. Ohio MSAs are typically funded by individuals, as there are no federal tax incentives for employer contributions.
HSA contributions can be made throughout the tax year and up until the federal tax filing deadline, usually April 15 of the following year. Ohio MSAs require contributions to be made within the calendar year, limiting flexibility for tax planning.
Tax Considerations for Withdrawals
Withdrawals from an HSA for qualified medical expenses are tax-free at both the federal and state level. Ohio MSAs provide state tax exemptions for eligible expenses but may not offer the same federal tax advantages, creating potential tax complications for those who move out of Ohio.
HSA withdrawals must be reported on IRS Form 8889, with non-qualified withdrawals subject to income tax and a 20% penalty unless the account holder is 65 or older. Ohio MSAs require reporting on state tax returns. While Ohio does not impose additional penalties for non-qualified withdrawals, federal tax consequences may still apply.
Eligible Uses of Funds
HSAs follow IRS guidelines for qualified medical expenses, while Ohio MSAs operate under state-specific rules. Some expenses covered by an HSA may not qualify under Ohio’s MSA rules, and vice versa.
Both accounts cover common expenses like doctor’s visits, hospital services, and prescription medications. However, HSAs allow tax-free withdrawals for long-term care insurance, COBRA continuation coverage, and Medicare premiums (excluding Medigap). Ohio MSAs have stricter limits on premium payments, which can affect retirees and those transitioning between jobs.
Penalties for Non-Qualified Use
HSAs impose a 20% federal penalty on non-medical withdrawals, in addition to treating the amount as taxable income. This penalty is waived for individuals 65 or older, though withdrawals still count as ordinary income if not used for medical expenses. Ohio MSAs do not have a state-imposed penalty, but non-medical withdrawals are subject to Ohio income tax.
HSA holders must report non-qualified distributions on IRS Form 8889. Ohio MSAs require reporting on state tax returns, but enforcement is generally less stringent.
State-Level Filing Requirements
Ohio MSA holders must report contributions and withdrawals on their Ohio state tax return and maintain records of medical expenses for verification. HSAs are reported on federal tax returns using IRS Form 8889.
Since HSAs are recognized nationwide, their tax treatment remains consistent across states that follow federal tax rules. Ohio MSAs, however, are not recognized outside the state, which can create tax complications for individuals who relocate.
Transition From Other Health Accounts
HSAs allow rollovers from Archer MSAs and other HSAs, while Ohio MSAs do not have a direct rollover mechanism. Individuals switching to an Ohio MSA must withdraw and redeposit funds, which may trigger tax consequences.
HSA funds cannot be transferred into an Ohio MSA without being considered a taxable distribution. Additionally, since HSAs require an HDHP, individuals moving to an Ohio MSA may need to reassess their insurance coverage. Understanding these differences is important for avoiding unintended tax liabilities.