Tax Benefits of an HSA

Because federally qualified Health Savings Accounts are tax-deductible, tax-deferred, and tax-free, you can use HSAs to save money each year on your annual tax return.

Tax-deductible

You and/or your employer can make contributions to your HSA (both of you can contribute in the same tax year), and all contributions are tax-deductible to the IRS maximums -- for 2010, these maximums are $3,050 for single coverage and $6,150 for family coverage. As of 2009, Individuals age 55 or older may contribute an extra $1000 per year to an HSA in "Catch-Up" Contributions.

Tax-deferred

The funds in your HSA earn interest, and the interest accumulates tax-deferred. Any withdrawals for qualified medical expenses are tax-free. At age 65, you can use the accumulated savings for non-qualified expenses at normal tax rates.

Tax-Free

Money that is withdrawn for qualified purchases is not subject to income tax.

How Do HSA Tax Savings Work?

With HSAs, tax savings are simple to understand and accomplish:

At the end of each year, a statement will arrive showing your HSA contributions for that year. You can deduct this amount from your taxes as long as it is less than or equal to the maximum allowable contribution.
HSA deductions are "above-the-line." Therefore, you do not have to itemize to take advantage of the deduction.
If you are self-employed, you may also deduct 100% of your health insurance premiums, provided that:
- You are not eligible to participate in a subsidized health plan offered by an employer or your spouse's employer.
- The deduction does not exceed the net income of your business.