A Health Savings Account (HSA) is a savings account that offers a way to pay for current health expenses and to save for future qualified health expenses on a tax-free basis. You must be covered by a high deductible health plan (HDHP) to take advantage of an HSA. Because an HDHP generally costs less than traditional health care coverage, the money you save on insurance can be put into the HSA to help contribute to future medical expenses. An HDHP is sometimes referred to as a “catastrophic” health care plan. It is a less expensive insurance plan that generally won’t pay for the first few thousand dollars of health care expenses, which are considered your annual deductible. An HSA can play an important financial role because it can help cover your deductible and other qualified health expenses.
How Are HSA Distributions Taxed?
Distributions from your HSA used exclusively to pay for qualified medical expenses for yourself, your spouse, or your dependents are excludable from gross income. Any other distributions are includable in your gross income and are subject to an additional 10 percent tax on the amount includable, except in the case of distributions made after your death, your disability, or your attainment of age 65. HSA distributions not rolled over will be taxed as income in the year distributed, unless they are used for qualified medical expenses. HSA custodians/trustees are not required to determine whether HSA distributions are used for qualified medical expenses.
How Do I Claim the Federal Tax Deduction for My HSA Contribution?
After-tax contributions made by you, and by family members on your behalf, which do not exceed the maximum annual contribution amount, are deductible by you when determining your adjusted gross income for your federal income tax return. You cannot deduct employer contributions, and these contributions will not count as wages for federal income tax purposes.
How is an HSA Established?
An HSA is established by you in much the same way that you establish an IRA—with a qualified trustee or custodian.
How Much Can I Contribute to My HSA?
The IRS releases HSA contribution allowances for each tax year. The table below shows you what is allowed for tax years 2018 and 2019. Additionally, a “catch-up” contribution is available for eligible individuals who have reached age 55 by the end of their taxable year but have not reached age 65.
Self-Only Contribution Limits
- Standard Limit: $3,450 for 2018, $3,500 for 2019
- Catch-up Limit: $1,000 for 2018 and 2019
Family Contribution Limits
- Standard Limit: $6,900 for 2018, $7,000 for 2019
- Catch-up Limit: $1000 for 2018 and 2019
What are the Federal Tax Benefits of an HSA?
After-tax contributions to an HSA are fully deductible. Earnings and distributions for qualified medical expenses are tax free. Consult with your tax or legal professional for guidance.
What Happens to My HSA in the Event of My Death?
If your spouse is the beneficiary of your HSA, the HSA becomes his/her HSA.
If your beneficiary is not your spouse, the HSA ceases to be an HSA as of the date of your death and will be included in the beneficiary’s gross income for the year of death.
When is the Contribution Deadline for Funding an HSA?
Regular and catch-up HSA contributions can be made at any time for a taxable year up to and including your federal income tax return due date, excluding extensions, for that taxable year. The due date for most taxpayers is April 15.
Who Can Contribute to My HSA?
If you meet the eligibility requirements for an HSA, you, your employer, and your family members may contribute to your HSA whether you are self-employed or unemployed.
This web page is intended to provide general information concerning federal tax laws governing HSAs. It is not intended to provide legal advice or to be a detailed explanation of the rules or how such rules may apply to your individual circumstances. For specific information, you are encouraged to consult your tax or legal professional. The IRS’s web site, www.irs.gov(Opens in a new window)(Opens in a new window)(Opens in a new window)(Opens in a new window)(Opens in a new window)(Opens in a new window)(Opens in a new window)(Opens in a new window), also provides helpful information.