Covering dependents with an HSA

Question:  We often get the question:  Should I set my spouse and children up as dependents, or employees with my PreTax Health HSA?

Answer:  You can either register your children as dependents or as employees, however if they are employees they should be officially employed (even part-time) and issued a T4. Put another way, anyone working for the company should have a T4 issued to show income, or they must be a dependent of someone who is an employee.

Generally we set our accounts up so that dependents up to 24 years old provided they are a full-time student. If they are not a student the default setup is 20 years old. Some companies with PreTax Health have modified these default ages to reflect the special needs of their employees. If the children are dependents then they come under the umbrella of your HSA limit.

Employee: If someone of this age is not a student but is a part-time employee then the degree of benefits they receive should reflect their hours (not precisely but relatively speaking). For example, if a full-time employee receives health spending account benefits of $5000 per year then someone who works half-time should not receive the same level of benefits.

The rules here with respect to a health spending account are no different that the CRA (Canada Revenue Agency) rules that would apply if you file a medical expense on your personal taxes, or if  you had a group health plan as an employee with a company (i.e., if it’s reasonable and acceptable in either of these cases then it would be reasonable and acceptable for a health spending account).

In all cases ‘shareholders’ are a red flag for the CRA – it is never allowable to give benefits to anyone soley because they are a shareholder. It is only allowed to give benefits to employees and dependents.

Regards,

The PreTax Health Support Team

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