Did you know that you can fund medical expenses and save taxes at the same time? Tax rules include multiple programs providing tax advantages to offset qualified medical expenses. One of the most common and easy-to-implement programs is a Health Savings Account (HSA).
HSA contributions can be made by an eligible individual or any other person, including an employer or a family member. No permission or authorization from the IRS is necessary to establish an HSA with a qualified trustee, such as a bank or an insurance company.
What are the benefits of a HSA?
- Tax Deduction
You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on IRS Form 1040. Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
- Tax Free Rollovers to Next Year
The contributions remain in your account until you use them. The interest earnings on account assets are tax free.
- Tax Free Distributions
Distributions may be tax free if used for qualified medical expenses. Qualified medical expenses are expenses that would generally qualify for the medical and dental expenses deduction. Expenses incurred before you establish your HSA are not qualified medical expenses. State law determines when an HSA is established.
Who is eligible for a HSA?
Individuals eligible to qualify for an HSA must meet certain requirements, which can get pretty complicated. In general, eligible individuals must:
- Be covered under a high deductible health plan (HDHP).
- Have no other health coverage.
- Not enrolled in Medicare.
- Cannot be claimed as a dependent on another taxpayer’s tax return.
Need more details? The IRS has them for you at http://bit.ly/1im7iei.