Maximize Your Tax Return with Health Savings Accounts

Freshly updated to facilitate filing 2021 tax returns, this article sheds light on the impact of Health Savings Accounts (HSAs) on your taxes. HSAs serve as an efficient means of accumulating funds for your medical expenses and costs, while allowing for tax-free contributions. Furthermore, you are not taxed on any funds utilized for qualifying medical expenses. With an HSA, you have an excellent tool for retirement savings, which can extend beyond medical expenses.

Apart from tax-free set-asides, HSAs offer additional tax benefits such as allowing interest earnings to remain non-taxable. Unlike with a Flexible Spending Account (FSA), there is no "use-it-or-lose-it" rule since any remaining funds from a year roll over to subsequent years while earning interest. For individuals above 65 years old who are healthy and have not used funds from their HSA, they can withdraw from the account penalty-free, even for non-qualifying medical expenses.

You, your employer, or both parties can contribute to an HSA, subject to maximum allowable contributions. If you are the sole beneficiary of your insurance coverage, you and/or your employer could contribute a maximum of $3,600 annually. For those with family coverage, you or your employer may contribute up to ,200. Individuals aged 55 or older may contribute up to an additional $1,000 as a catch-up contribution, regardless of their single or family coverage. It is important to adhere to these limits lest you get charged a 6% penalty if contributions exceed the limits.

It is imperative to self-report any non-qualifying purchases on the Health Savings Account screen to avoid penalties and fines. Neglecting to claim non-qualifying expenses may lead to an audit, which could compound your problems with the tax authorities.

Regarding the eligible medical expenses qualifying for HSA funds, most HSAs offer a debit card for this purpose, with paper checks and online bill payments available in some cases. As long as the medical expenses are not covered or reimbursed by your insurance, they are considered qualifying and include professional services, medical treatments, laboratory tests, dental services, and hospital services. Due to the CARES Act, users can now also pay for over-the-counter medications such as painkillers and fever reducers from their HSAs. It is vital to keep receipts for any HSA expenses, including doctor co-pays, prescriptions, and medical supplies, and all HSA statements for future reference.

It is crucial to remember that paying for qualifying medical expenses from an HSA disqualifies you from claiming that expense as a medical deduction on your return. To qualify for an HSA, you must be enrolled in a High Deductible Health Plan (HDHP). The deductible for an HDHP must be at least $1,400 for an individual or $2,800 for families. Your insurance company can set up an HSA through your employer, or you can set one up at most banks or credit unions. Finally, it is important to note that if you are a dependent on someone else's tax return, you cannot have an HSA of your own.

What is the Required HSA Information I Must Include in My Tax Return?

As you prepare to submit your tax return, it is essential to include all withdrawals made during the year from your HSA, known as distributions. To achieve this, Form 1099-SA will be sent to you—either by email or mail—which indicates the total sum of money withdrawn from your HSA account during the year. This form also specifies whether the money was spent on qualified expenses.

Submitting Your Tax Return with HSA Information on 1040.com

We are committed to providing you with a seamless, straightforward tax return-filing process, even when reporting HSA information. By recording the sum of your HSA distributions on the Health Savings Account screen on your 1040.com return, you are only a few steps away from completing your tax return.

It's a great feeling, isn't it?

Remember to create an account or log in to file your taxes using 1040.com today!