Hi folks,
I am a U.S. citizen living and working in Canada. I have a couple of questions regarding Canadian Health Spending Accounts and U.S. reporting requirements that I'm desperately trying to find answers to. Last year my employer (a Canadian corp.) switched from a standard health insurance benefits plan to a Health Spending Accounts Plan. Each month a sum is deposited directly by my employer into an HSA, which is administered and funds are held in trust by a third party. As I incur health expenses, I can submit a claim to withdraw the funds tax-free from this account. 1) Should I be reporting my employer's contributions as income on my U.S. tax return even though they are not considered taxable income in Canada? 2) Is this HSA account reportable on my FinCEN Report 114 (FBAR)? Any guidance would be greatly appreciated!
Canadian Health Spending Account and U.S. Taxes
Moderator: Mark T Serbinski CA CPA
Hello,
I was recently wondering the same thing. There is something in the US called the "Health Savings Account" and it has tax implications.
I'm interesting in other opinions, I believe that the employer's contributions to an HSA do not constitute a taxable benefit for US purposes. Since the distributions from a health care spending account are like any other insurance claim, these wouldn't be taxable right? If the HSA covered a medical expense, then you must omit it from schedule A "itemized deductions". My 2 cents.
Best Regards.
I was recently wondering the same thing. There is something in the US called the "Health Savings Account" and it has tax implications.
I'm interesting in other opinions, I believe that the employer's contributions to an HSA do not constitute a taxable benefit for US purposes. Since the distributions from a health care spending account are like any other insurance claim, these wouldn't be taxable right? If the HSA covered a medical expense, then you must omit it from schedule A "itemized deductions". My 2 cents.
Best Regards.
There are 3 issues:
1. the taxability of the employers contributions (and deductibility of any employee contributions) to a CHSA.
2. The treatment of payouts from CHSA.
3. The treatment of growth within the CHSA.
Remember, these are esentially no different than TFSAs, RESPs, RDSPs, etc, none of which are recognized as shelters by IRS. And since they are not for the purpose of retirement, they enjoy no treaty protection.
Therefore, in my opinion:
1. employer contributions ARE a taxable benefit, just like employer contributions to group RRSPs were until the last protocol. Also, any HSAs which are partially or wholly funded by the taxpayer are not eligible for tax deduction. (the'premiums' would be an eligible medical expense however).
2. any medical expenses incurred could be itemized, regardless of whether funds from the HSA were used to reimburse or not. This is analoguous to how CRA treats medical expenses incurred by Cdns commuting to work in US (or filing a 217 election) and claiming medical expenses while having an FSA/HSA: contributions are not deductible, but the expenses paid with the account are not excludable.
3. The internal income of the HSA is fully taxable in US. The accounts are foreign and controlled by the taxpayer, and are subject to FinCEN and FATCA
1. the taxability of the employers contributions (and deductibility of any employee contributions) to a CHSA.
2. The treatment of payouts from CHSA.
3. The treatment of growth within the CHSA.
Remember, these are esentially no different than TFSAs, RESPs, RDSPs, etc, none of which are recognized as shelters by IRS. And since they are not for the purpose of retirement, they enjoy no treaty protection.
Therefore, in my opinion:
1. employer contributions ARE a taxable benefit, just like employer contributions to group RRSPs were until the last protocol. Also, any HSAs which are partially or wholly funded by the taxpayer are not eligible for tax deduction. (the'premiums' would be an eligible medical expense however).
2. any medical expenses incurred could be itemized, regardless of whether funds from the HSA were used to reimburse or not. This is analoguous to how CRA treats medical expenses incurred by Cdns commuting to work in US (or filing a 217 election) and claiming medical expenses while having an FSA/HSA: contributions are not deductible, but the expenses paid with the account are not excludable.
3. The internal income of the HSA is fully taxable in US. The accounts are foreign and controlled by the taxpayer, and are subject to FinCEN and FATCA
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thanks nelsona - always appreciate your input.
Gee - I never considered these as accounts, just as any other "fringe benefit" which I assumed were never taxable for US purposes.
I live in Quebec, I did find out a few years ago that the employer's premiums are considered a taxable benefit for QC purposes only.
I haven't been reporting this, but here is detail on my Canadian HSA.
The empolyer contributes $650 per year (26 pays x $25). At the beginning of the year, I get something in the account called "HSA credit" of $750.
I usually only use about $300 of this per year, and unused credits are forfeited on Dec 31.
I can't figure out how I should be claiming this to the US. Revenu Quebec requires me to do the following:
Claim the $650 per year as employment income (taxable benefit). I also get a non-refundable tax credit of $650 x 0.2 which is subject to a income tested phase out.
Benefits (coverage) from the plan are not taxable by Quebec - but I can't claim the covered medical expense as if I had paid it.
Maybe the US case is:
1. The $650 is a taxable benefit equivalent to pay.
2. The HSA credit of $750. Would this be a capital gain of $100?
3. Spend $300 on medical expenses. This are claimable regardless of the fact that the funds came from the HSA plan.
4. The forfeited credits - would these have "capital loss" character? or ordinary loss?
Lots to think about . Thanks for your inputs.
Gee - I never considered these as accounts, just as any other "fringe benefit" which I assumed were never taxable for US purposes.
I live in Quebec, I did find out a few years ago that the employer's premiums are considered a taxable benefit for QC purposes only.
I haven't been reporting this, but here is detail on my Canadian HSA.
The empolyer contributes $650 per year (26 pays x $25). At the beginning of the year, I get something in the account called "HSA credit" of $750.
I usually only use about $300 of this per year, and unused credits are forfeited on Dec 31.
I can't figure out how I should be claiming this to the US. Revenu Quebec requires me to do the following:
Claim the $650 per year as employment income (taxable benefit). I also get a non-refundable tax credit of $650 x 0.2 which is subject to a income tested phase out.
Benefits (coverage) from the plan are not taxable by Quebec - but I can't claim the covered medical expense as if I had paid it.
Maybe the US case is:
1. The $650 is a taxable benefit equivalent to pay.
2. The HSA credit of $750. Would this be a capital gain of $100?
3. Spend $300 on medical expenses. This are claimable regardless of the fact that the funds came from the HSA plan.
4. The forfeited credits - would these have "capital loss" character? or ordinary loss?
Lots to think about . Thanks for your inputs.
So, at the end of the year you are left witha balance of what?
$450, $350, or $0? the isea in the US is that SAVINGS accounts build from year to year. What youare descibing is a SPENDING account.
if it is $0, then you have no "profit", so I would not be claiming any investment income gains or losses. I would simply be including the $650 as income. But if these are truly savings accounts, then you should be accruing from year to year.
$450, $350, or $0? the isea in the US is that SAVINGS accounts build from year to year. What youare descibing is a SPENDING account.
if it is $0, then you have no "profit", so I would not be claiming any investment income gains or losses. I would simply be including the $650 as income. But if these are truly savings accounts, then you should be accruing from year to year.
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The balance at the end of the year is $0 - they don't allow carry forward.
I think this implies that it's an insurance contract, ie. not an account that I have control over. If SunLife, the insurance provider, can take away forfeited credits - doesn't this imply that I don't own the account?
So, in conclusion perhaps we agree that the US would tax it the way Quebec does. The employer premiums are a taxable benefit.
I think this implies that it's an insurance contract, ie. not an account that I have control over. If SunLife, the insurance provider, can take away forfeited credits - doesn't this imply that I don't own the account?
So, in conclusion perhaps we agree that the US would tax it the way Quebec does. The employer premiums are a taxable benefit.
I agree. taxabale benefit. No income or acount issues.
I would include the entire $650 as a medical expense (but then not any reimbursed amounts). You get $650 as an expense unless you spend more.
I would include the entire $650 as a medical expense (but then not any reimbursed amounts). You get $650 as an expense unless you spend more.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
IRS Publication 969 dealing with health savings accounts also covers several types of health spending accounts - namely, an FSA and an HRA. Perhaps there are some good ideas there as to how the IRS treats health spending accounts, that can be applied to the original question of how the Canadian health spending account should be dealt with on the US return. Hope this is somewhat helpful.
Hi Sammyboy,
What is your account called?
It's likely a "Healthcare Spending Account" - in which case, since unused balances can be forfeited, this means you don't own the account, or in FBAR speak, you don't have a financial interest in the acccount.
I have never heard of a "Health Care SAVINGS account" in Canada. The CRA only recognizes "Health Care Spending Accounts" to my knowledge.
Assuming it is a Spending account, it is neither an account for FBAR purposes nor US foreign trust (3520 reporting) purposes.
Only my opinion - I'm not a professional in these matters.
Best Regards.
What is your account called?
It's likely a "Healthcare Spending Account" - in which case, since unused balances can be forfeited, this means you don't own the account, or in FBAR speak, you don't have a financial interest in the acccount.
I have never heard of a "Health Care SAVINGS account" in Canada. The CRA only recognizes "Health Care Spending Accounts" to my knowledge.
Assuming it is a Spending account, it is neither an account for FBAR purposes nor US foreign trust (3520 reporting) purposes.
Only my opinion - I'm not a professional in these matters.
Best Regards.
K104XYZ,
Theoretically, you could, but,as I pointed out, just because a foreign looks the same as a US one, or even has a similr name, doesn't maen it is blessed by IRS as that type of account. This has always been the case.
MGeorge,
I don't think sammy ever referred to them as a savings account, thta was MY misinterpretation. They are spending accounts.
Sammy,
based on our discussiong, I said "no income or account issues". That means no fincen, fatca, trust issues, as well as no internal income issues.
Theoretically, you could, but,as I pointed out, just because a foreign looks the same as a US one, or even has a similr name, doesn't maen it is blessed by IRS as that type of account. This has always been the case.
MGeorge,
I don't think sammy ever referred to them as a savings account, thta was MY misinterpretation. They are spending accounts.
Sammy,
based on our discussiong, I said "no income or account issues". That means no fincen, fatca, trust issues, as well as no internal income issues.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing