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HSAs and Your Tax Return

3 min read

30 sec brief

If you have an HSA, no matter if you are actively making contributions or deductions, you will need to get prepared for filing your tax return. Understanding the HSA tax details is the first step in this process. We will give you a quick review and help you get prepared for tax season.

If you have an HSA, no matter if you are actively making contributions or deductions, you will need to get prepared for filing your tax return. Understanding the HSA tax details is the first step in this process. We will give you a quick review and help you get prepared for tax season.

The HSA is one of the most tax advantageous accounts on the market. In addition to being the only dedicated long-term health savings option, the HSA provides a clear path to 100% tax-free savings, investment, and spending. That is, as long as you know (and adhere to) the tax details.

HSA Tax Benefits (and non-taxable items)

  • Tax-free savings for all HSA contributions (bonus FICA savings if they are made through payroll).
  • Tax-free growth (interest and investment) for all HSA money creates a tax-free way to invest your HSA funds for years to come.
  • Tax-free withdrawals for qualified out-of-pocket medical expenses enables you to save and use 100% tax-free dollars with your HSA, effectively saving you 25% off the retail cost (25% assumes combined state and federal income taxes of 25% or more).

Most states provide for these tax savings as well, but not all. Be sure to check with your tax professional to determine what your tax impact may be at the state level.

HSA Contributions

  • 2017 HSA contributions limits are $3,400 for individuals and $6,750 for families. Individuals can contribute an additional $1,000/year in catch up contributions if they are 55 years of age or older in that calendar year. There are no other exceptions that increase the annual contribution limits for eligible HSAs.
  • If you exceed maximum yearly contribution, a 6% penalty can be assessed to any excess contributions.
  • This is an unlikely scenario, but if you owe money to the IRS, they can levy your HSA funds.

HSAs and Medical Expenses

  • HSA account holders can use their debit card (like the one provided by Lively) to keep track of and automatically upload receipts for HSA purchases. Alternatively, users can upload receipts to ensure IRS compliance.
  • If you have any questions or want to review the full list of qualified out-of-pocket HSA medical expenses, you can visit the IRS website.
  • If you use HSA funds for non-qualified expenses you’ll be subject to a 20% penalty from your IRS funds (based on the final purchase amount) plus taxes.

Filing Your Taxes with an HSA

  • Before we get started with any tax forms, take time to review your HSA contributions and expense deductions to ensure your HSA is in compliance with all IRS guidelines. You still have time to rectify some of these issues (like over-contributing) before you file your taxes.
  • Based on the HSA type, contribution levels, total HSAs, etc you will need specific forms. We have provided a detailed checklist to help. You can download it for free.
  • Contact your HSA provider if you are missing or need any help with form collection.

Nothing on this page is intended to provide any tax, legal, insurance or financial advice. Please consult with a professional in those areas for specific advice related to your situation. Additional forms may be required for federal or state tax purposes. For more information on HSAs and tax or reporting requirements, please refer to IRS Publication 969.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

About the author

Lively

We are HSA Experts! Lively is a Health Savings Account (HSA) platform for employers and individuals. A 401(k) for healthcare.

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