A Health Savings Account (HSA) is a way to save money to pay for medical expenses and costs that are not covered by insurance. An HSA is also a great tool for retirement savings, even if those savings are not for medical expenses post retirement.
Besides being able to set aside money tax-free, HSAs have other tax benefits:
You, your employer, or both can contribute to an HSA. All contributions tax-free – no income taxes or FICA (Social Security and Medicare) taxes.
There are maximums for allowable contributions. If you’re the only person your insurance covers, you and/or your employer could contribute up to $3,550 annually. If your insurance plan covers you and your family, you or your employer may contribute up to $7,100.
If you’re 55 years or older, you may contribute up to another $1,000 as a catch-up contribution, whether you have single or family coverage. Careful: Whatever your maximum is, if you exceed it, a 6% penalty will be assessed.
But: If you owe any money to the IRS, the IRS can levy your HSA. And if you’re under 65, there’s a 20% penalty for involuntary distributions.
You can use an HSA for qualifying medical expenses. Most HSAs provide a debit card to use for paying your expenses.
Keep any receipts from purchases you make using your HSA, as well as any statements you receive about your HSA. These documents are important if the IRS has questions about a specific expense paid for by the HSA.
Important: If you pay for a qualifying medical expense from an HSA, you can’t also claim the expense as a medical deduction on your return.
If you use your HSA to purchase a non-qualifying medical expense, you’ll be subject to a 20% penalty unless you become disabled, are 65 years or older, or die.
When you’re getting ready to e-file your return, any money deposited into your HSA by your employer will be listed in Box 12 of your Form W-2. If you or anyone other than your employer deposited money into your HSA, you should receive Form 5498 showing how much was deposited.
Whether you’ve only made contributions or had to use your HSA funds one way or another, Tax Office & Associates™ is here to make the tax-filing side of your savings as simple as possible. Call us today to get started!