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How can a Health Savings Account save on taxes?
For eligible individuals, Health Savings Accounts, or HSAs, offer a tax-favorable way to set aside funds to meet future medical expenses. To be eligible for an HSA, you must be covered by a “high deductible health plan” with the high deductible limit defined by the IRS each year. You must also not be covered by another plan which is not a high deductible health plan, for example, a spouse plan that is not a high deductible plan.
The contributions that you or your employer make to an HSA account are made with pre-tax dollars and the benefit to you is that your taxable income is reduced by the amount of your contribution to a qualified HSA plan.
In 2018 the maximum amount you can contribute to an HSA plan is $3,450 for single filers and $6,900 for married filers. Taxpayers 55 or older can contribute and additional $1,000 to an HSA account.
HSA accounts are generally exempt from taxation, and there is no tax on earnings. However, taxes may apply if contribution limitations are exceeded, required reports are not provided, or prohibited transactions occur.
Distributions from the HSA to cover an eligible individual’s qualified medical expenses, or those of his spouse or dependents, are not taxed. Qualified medical expenses for these purposes generally mean those that would qualify for the medical expense itemized deduction. If funds are withdrawn from the HSA for other reasons, the withdrawal is taxable.
This is another Question ForMy Account. If you have a question, want to setup an HSA, need personal income tax services in Clearwater or business tax services in Clearwater, Largo, Dunedin, Oldsmar, Lutz or Land O’ Lakes, contact FMA, C.P.A. and let us show you the way!