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Standard Summary
Comprehensive overview in 1-2 paragraphs
The HOPE Act of 2025 creates a new type of tax-advantaged trust called a HOPE Account (Health Out-of-Pocket Expense Account) designed to pay for qualified medical expenses. HOPE Accounts would be tax-exempt trusts, with strict rules about who can contribute, how much can be contributed, how funds are invested and distributed, and how they are reported. Contributions are limited, broadly similar to a savings cap, and distributions are tax-favored only when used for qualified medical costs. The bill also integrates HOPE Accounts with existing health-account rules (like HSAs, FSAs, HRAs, and Archer MSAs) and imposes reporting and compliance requirements on trustees and employers. It would apply to taxable years beginning after December 31, 2025.
Key Points
- 1What a HOPE Account is and how it works:
- 2- A HOPE Account is a US-formed trust designed exclusively to pay qualified medical expenses for the account beneficiary, with detailed governance rules (trustee must be a bank, insurance company, or similarly-qualified entity; no life insurance in the trust; nonforfeitable interest; limited administrative fees; required substantiation of qualified medical expenses).
- 3- Distributions for qualified medical expenses are tax-free; distributions for non-qualified purposes are generally taxable with an added 30% penalty, and there are specific ordering rules for how distributions are treated.
- 4- Accounts are subject to annual reporting and must follow Treasury guidance on substantiation and other requirements.
- 5Contribution rules and eligibility:
- 6- Aggregate contributions to all HOPE Accounts for an eligible individual in a year cannot exceed a monthly limit (4,000 dollars per month for self-only or certain family scenarios; 8,000 dollars per month for family coverage when the account holder is head of household).
- 7- There is a limit on third-party contributions (e.g., from employers or state Medicaid programs) so they cannot exceed 50% of the individual’s limit.
- 8- Contributions are not deductible, but, for individuals with adjusted gross income (AGI) of up to $100,000 ($200,000 for joint filers), a HOPE Account contribution can be excluded from gross income.
- 9- Contributions to HOPE Accounts are coordinated with contributions to other health accounts (HSA, FSA, HRA, Archer MSA) and may reduce the HOPE limit accordingly.
- 10Eligibility and interaction with other coverage:
- 11- An “eligible individual” is someone for whom, each month, they have qualifying coverage (minimum essential coverage or, for American Indian/Alaska Native Tribes, Indian Health Service). If they have other health coverage accounts (HSA, FSA, HRA, Archer MSA) during a month, those months can disqualify that month unless the coverage falls into a defined exception.
- 12- Rollover contributions are allowed under specific rules.
- 13Tax treatment and penalties:
- 14- Distributions used exclusively for qualified medical expenses are tax-free.
- 15- Distributions not used for qualified medical expenses are generally included in gross income, with a 30% additional tax in the year of the distribution, and there are specified ordering rules for such distributions.
- 16- There are rules to prevent and correct excess contributions, including provisions for returning excess amounts with any earnings taxed appropriately.
- 17Employer involvement and reporting:
- 18- Employers can contribute to an employee’s HOPE Account, and those contributions can be treated as employer-provided coverage for medical expenses up to the HOPE limit (subject to income-based thresholds).
- 19- If an employer fails to provide comparable HOPE contributions, penalties and enforcement provisions similar to current rules for HSAs apply, and HOPE is added to the list of comparable accounts.
- 20- Employers must report HOPE contributions on payroll and information returns; cafeteria plan provisions would be amended to include HOPE accounts.
- 21Compliance, enforcement, and effective date:
- 22- HOPE Accounts would be subject to prohibited-transaction rules and other enforcement provisions to ensure proper use.
- 23- The amendments apply to taxable years beginning after December 31, 2025.
Impact Areas
Primary group/area affected:- Eligible individuals seeking tax-advantaged funds to pay out-of-pocket medical expenses, including those with employer-sponsored coverage, HSAs, FSAs, HRAs, or Archer MSAs. The design targets reducing out-of-pocket medical costs while tying use of funds to qualified medical expenses.Secondary group/area affected:- Employers (who may contribute to HOPE Accounts as a form of health coverage) and health plan administrators (trustees, banks, insurers) who would manage HOPE Accounts and handle reporting, substantiation, and compliance.- Tax-expertise and tax-exempt entities, because HOPE Accounts are generally tax-exempt but may owe unrelated business income tax and must comply with reporting and compliance rules.Additional impacts:- Interaction with existing health-accounts rules could influence decisions about contributing to HSAs, FSAs, HRAs, and Archer MSAs, as HOPE contributions are coordinated with other health accounts and could affect eligibility for certain deductions or exclusions.- Budgetary and regulatory implications include new reporting requirements (to the Secretary and account owners), potential penalties for non-compliance, and changes to non-discrimination and employer-coverage rules.- The cost-of-living adjustment provisions mean the contribution limits may increase over time, potentially expanding or constraining participation depending on future inflation and the actual COLA implementation.
Generated by gpt-5-nano on Oct 31, 2025