The Freedom for Families Act would expand how Health Savings Accounts (HSAs) are used and who can contribute to them. The bill allows tax-free distributions from an HSA not only when paying qualified medical expenses for the account beneficiary, but also during any period the account beneficiary is on family or medical caregiving leave (as defined by the Family and Medical Leave Act). It also broadens the definition of period of qualified caregiving and adds related conforming changes to the code. In addition, the bill removes the current requirement that an HSA must be paired with a high-deductible health plan (HDHP) and increases the annual contribution limits for HSAs. These changes would apply to taxable years beginning after the enactment date. Overall, the bill aims to provide greater flexibility and financing options for families managing caregiving responsibilities and health costs.
Key Points
- 1Tax-free distributions during caregiving: Any amount distributed from an HSA is tax-free if it is used for qualified medical expenses or if it is paid or distributed during a period of qualified caregiving (i.e., while the account beneficiary is on FMLA-related leave or not employed due to a qualifying FMLA situation).
- 2Period of qualified caregiving defined: The bill defines a period of qualified caregiving to include leaves or non-employment described under the Family and Medical Leave Act of 1993.
- 3Conforming amendments to expenses: The Internal Revenue Code is amended so that expenses incurred during a period of qualified caregiving can count toward qualified medical expenses for tax-free distributions from an HSA.
- 4NoHDHP requirement and higher limits: The bill removes the HDHP requirement for HSA eligibility and contribution, and raises the HSA contribution limits to $9,000 for individuals (and $18,000 for joint filers). It also reorganizes related provisions accordingly.
- 5Effective date: The changes apply to months in taxable years beginning after enactment.