Q&A by: Rob Ferguson, Health Care Reform Specialist
Health Benefits US
The following are the most common questions I get asked all the time. For more information, visit our website.
How much am I saving in taxes because of my HSA? The answer depends on your marginal federal tax rate, your state income tax rate, how much you contribute and other factors. Individuals can claim a 2010 tax deduction of up to $3,050 for individuals and $6,150 for families, plus a $1,000 catch-up if you are between ages 55 and 65. Assuming a 28% federal tax rate, a 6% state tax rate and a maximum contribution made, the savings would be $2,091 for a family High Deductible Health Plan (HDHP) ($6,150 x 34%) or $1,037 for a single HDHP ($3,050 x 34%). In addition to the tax deduction, funds in an HSA grow tax free. Note: HSA contributions are tax deductible as an "above-the-line" deduction found on line 25 of the 2010 IRS Form 1040. "Above-the-line" means that you get the benefit of the deduction even if you take the standard deduction and do not itemize.
What if my employer actually put the money in the HSA? If your HSA contribution was made pre-tax by your employer or through a Section 125 payroll deferral plan, you cannot deduct the HSA contribution on your tax return. You cannot deduct it because it was never included in your income. This is good news because you already got the tax benefit and it was pre-FICA and FUTA too.
Can I still contribute to my HSA for 2010? Yes, individuals have until April 15th, 2011 to make their 2010 HSA contributions. Use our HSA Contribution Form to tell us what year the contribution is for 2010 or 2011. For example, John has a $5,000 deductible family HDHP that he started January 1, 2010 but never got around to making an HSA contribution. He now (March 2011) wants to contribute $6,150 for 2010 and can do that. He can also contribute another $6,150 for 2011 (assuming he is still eligible) for a total HSA contribution of $12,300 potentially all made on the same day.
How do taxes on HSA distributions work? Distributions for eligible medical expenses are tax free. The IRS however, still requires some reporting (consult a tax professional). Also, you cannot use Form 1040EZ made a contribution to your HSA or took a distribution from your HSA in 2010.
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