Get the most tax savings out of your HSA
If you have a health plan with a health savings account (HSA), there’s still time to maximize your tax savings for 2019; due to the Covid-19-related extended tax day deadline of July 15, 2020. Currently, the IRS maximum allowable amount for an individual is $3,550 and $7,100 for families. Plus, if you are 55 or older, you can add $1,000 for each of these amounts. The IRS has also announced that for your 2021 filings, the individual maximum has increased to $3,600 and the family maximum is $7,200. The over 55 additional amount will remain $1,000.
Start building your HSA tax savings
When you make regular HSA contributions throughout the year, your tax savings will really add up.
How can you benefit from tax savings?
An HSA provides triple tax savings by reducing your taxes. Here’s how:
- Contributions to your HSA can be made with pre-tax dollars, which reduces your taxable income
- Any after-tax contributions that you make to your HSA are tax deductible
- HSA funds earn interest tax free and when used for eligible medical expenses are also free from tax
What can you use HSA funds for?
You can use your HSA to pay for qualified medical expenses as defined in the IRS Code Section 213 (d). In general these expenses include:
- Health plan deductibles
- Prescribed medicines and drugs, and insulin
- Dental expenses for the prevention and alleviation of dental disease
- Vision care
- Hospital bills for medical services
- Certain medical equipment
Plus, you can even used an HSA to save on a typical trip to the drugstore. Thanks to a tax relief provision tucked in the last Covid-19 stimulus package, you can use money you stash in an HSA for over-the-counter medications like Tylenol or Flonase as well as menstrual products like tampons and pads. That reverses Obamacare restrictions on OTC meds requiring a doctor’s prescription for them to be eligible for reimbursement.
One benefit of having an HSA is that any unused funds roll over from year to year and keep growing. There’s no “use it or lose it” penalty. HSA funds can also be used to reimburse yourself for past medical expenses if the expense was incurred after your HSA was established.
Who is eligible for an HSA?
Anyone who is covered by a qualified high deductible health plan (HDHP) is eligible as long as:
- You are not also covered by a non-HDHP except as otherwise allowed by the IRS Code
- You are not enrolled in Medicare, TRICARE or TRICAREfor Lifw
- You cannot be claimed as a dependent on another person’s tax return
How do an HDHP and an HSA work together?
While paying lower premiums for your HDHP, you can put those savings into your HSA
You can use your HSA funds to pay for qualified medical expenses
Is an HSA Right for You?
From tax savings to investment opportunities, there are many advantages to having an HSA. All you need to get started is a qualified HDHP. To see if an HSA is right for you, check out this tool from HSA Bank, a division of Webster Bank, N.A.. You can also calculate your tax deferred growth and future value of your Health Savings Account with this tool. HSA doesn’t provide tax advice and advises to you consult your tax professional for any tax-related questions.
Sources:"IRS Announces 2021 Health Savings Account Contribution Limits, Still Time To Make 2019 And 2020 HSA Contributions". Ashlea Ebeling, Forbes.com