There are plenty of advantages to a Health Savings Account. Funds rollover each year, there’s no “use it or lose it’ and the account is FDIC insured. But the biggest advantage is the tax savings.
Contribution Tax Benefits
If your employer offers a payroll deduction through a Section 125 Cafeteria Plan, you can make contributions to your HSA on a pre-tax basis. The deduction is removed from your paycheck prior to taxes being applied and deposited into your HSA. Ask your employer if they facilitate pre-tax deductions.
Contributions can also be made post-tax as an “above-the-line” deduction. This means you can reduce your taxable income by the amount you contribute to your HSA. HSA Bank will send you all the documents you need to complete your HSA-related tax filing.
Distribution Tax Benefits
Eligible medical expenses such as prescriptions or dental and vision care can be purchased tax-free when you use your HSA. You can also pay out-of-pocket for eligible medical expenses and then reimburse yourself from your HSA.
Earnings Tax Benefits
The interest on HSA funds grows on a tax-deferred basis. And, unlike most savings accounts, interest earned on an HSA is not considered taxable income when the funds are used for eligible medical expenses.
When do you Pay Taxes on your HSA?
The only time you may pay taxes or penalties on your HSA funds is if you make a non-eligible purchase, or if you contribute more than the yearly maximum contribution limit. However, both misuses can be corrected free of tax penalties by April 15th of the following calendar year.
Determine State Tax Benefits
Tax advantages occur at the federal level. Click here to see if your state provides additional tax benefits for HSAs.
Calculate Tax Savings & Future Value Potential
An HSA could save you thousands of dollars in taxes. Calculate your potential savings using our Future Value Calculator to estimate tax-deferred growth and tax savings.
Note: HSA Bank does not provide tax advice. Please consult your tax professional for tax-related questions.