Question

How does a health savings account (HSA) affect my taxes?

Answer

Deposits paid directly to your health savings account (HSA) can result in an HSA tax deduction. However, contributions paid through your employer are already excluded from your income on your W-2. So, the HSA deduction rules don’t allow an additional deduction for those contributions.

If you use the health savings account (HSA) to pay your medical expenses then you do not get to itemize medical deductions for the same expenses. However, if you have enough medical expenses not paid with the HSA you may be able to claim them as an itemized deduction. In order to itemize, deductible expenses must be more than 7.5% of your adjusted gross income (AGI). An HSA contribution deduction lowers your AGI which could make it easier for you to pass the 7.5% hurdle.

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More on HSA deduction rules

A health savings account (HSA) is a tax-advantaged savings account available to people enrolled in a high-deductible health plan. The money deposited into the HSA is not subject to federal income tax at the time the deposit is made. Additionally, HSA funds will accumulate year-to-year if the money is not spent. HSA funds may be used to pay for qualified medical expenses at any time. Other benefits health savings accounts:

  • Contributions you make to your HSA through payroll deductions may be excluded from your gross income.
  • You are eligible for a tax deduction for additional contributions you made to your HSA even if you do not itemize your deductions.
  • Contributions made to your HSA by your employer may be excluded from your gross income.
  • The contributions remain in your account until you use them.
  • The earnings in the account aren’t taxed. Distributions used to pay for qualified medical expenses are tax-free
  • The HSA stays with you if you change employers.

More help with HSA and tax deductions

For more help navigating what you can and can’t claim on your taxes, get the help of a tax pro at H&R Block. Find a tax office nearest you now.

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