Is my HSA tax-deductible?
2 min read •
30 sec brief
Your HSA can be tax-deductible, but there are different ways that your taxes can get deducted before your funds enters your HSA. Do you know when your taxes are being deducted?
If you have an HSA, you've probably heard about multiple different tax savings. Does that mean that your HSA is tax-deductible?
Short answer: Yes, your contributions to a Health Savings Account (HSA) are tax-deductible under certain circumstances.
But that’s just the beginning of the tax breaks. Any money in your HSA account is not subject to tax. Plus, when you withdraw money from your HSA to pay a qualified medical expense, there will be no tax bill.
While everyone is eligible for a tax deduction on their HSA contribution, the mechanics of how you pocket the deduction varies depending on how your contributions are made. Here are a few ways your taxes can be deducted:
Your HSA is a workplace benefit that you contribute to through automatic payroll deductions.
Your contributions are pulled from your paycheck before taxes, effectively reducing your taxable income for the year. In other words, your tax deduction is automatic. The deduction happens in the payroll department; there’s nothing you need to do to reap the benefit of this tax break.
Your employer contributes to your HSA.
The dollars that your employer contributes to your HSA account are not counted as “income” to you. You receive the financial benefit, without the value of the contribution being added to your taxable income for the year.
Note: Both you and your employer can contribute to your HSA. Combined total contributions must not exceed the annual HSA limits set by the IRS.
The 2020 HSA contribution limit is $3,550 for an HSA tied to an individual high deductible health plan (HDHP) and $7,100 if your health insurance is for family coverage. (Starting at age 55 you can make an additional $1,000 catch-up contribution.)
The 2021 HSA contribution limit is $3,600 for an HSA tied to an individual high deductible health plan (HDHP) and $7,200 if your health insurance is for family coverage. The $1,000 catch-up contribution will remain the same.
You fund your own HSA.
If you are self-employed, or your employer doesn’t offer an HSA tied to an HDHP, you will be in charge of setting up your own HSA account. (It’s easy.) In this scenario, your contributions will be made from regular after-tax money you’ve got sitting in a bank account. Don’t worry, you will still be able to deduct your contribution, but it requires an additional step when you file your federal tax return: fill out IRS Form 8889 and your contribution will be deducted from your taxable income.
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