Reap The Tax Benefits of Your HSA
A health care spending account is a great way to set aside money for fixed health care costs as well as for any unexpected costs that may pop up during the year. Unlike traditional health insurance, an HSA allows your to accrue interest on the balance, and to have more control over your selection of health care providers. In other words, if that weekend pick-up basketball game left you limping, you can withdraw funds from your HSA to see the provider of your choice.
One of the perks of having an HSA is that you can qualify for a higher medical expense deduction at tax time. Here’s how it works: rather than having to meet the IRS threshold before you can itemize and deduct your medical expenses, you can instead deduct the total amount paid from your HSA and report it as an adjustment to income.
Since this adjustment is deducted from your gross income instead of your Adjusted Gross Income (AGI) your tax benefit may be lower. The good news is that you may easily qualify for this deduction since you don’t have to worry about spending a set percentage of your income on medical costs.
Since an HSA is considered a savings account, it’s eligible to earn interest. As your contributions grow each year, you could end up earning a decent amount of interest income. Unlike a traditional savings account, however, your HSA interest isn’t subject to income tax by the IRS. Any interest income that you earn from your HSA won’t be taxed at all.
Qualifying For The Deduction
Here are some rules to keep in mind:
- The expenses paid from your HSA account must only be for qualified medical expenses.
- You must also keep your contributions below the IRS annual limit. The contribution limits for this year are $3350.00 for individuals and $6650.00 for families.
- Contributions that are above the established limits will be subject to an excise tax.
Making HSA contributions can result in substantial savings on tax day. HSAs offer tax-free interest income and an increased medical expenses tax deduction. These features allow you to protect your health and to boost your bottom line at the same time.