If you are an “eligible individual,” you can, within limits, deduct the amount you contribute to a health savings account (HSA) in computing adjusted gross income. You can even deduct contributions that family members or other persons make to an HSA on your behalf. Your employer also may make contributions to your HSA. You get no deduction for those employer contributions; however, the employer contributions are generally excluded from your gross income.
An HSA is a U.S. trust or custodial account set up with a qualified trustee or custodian for the exclusive purpose of paying the account beneficiary’s qualified medical expenses. Only “eligible individuals” can set up a health savings account (HSA). Your eligibility to establish or make deductible contributions to an HSA is determined on a month-by-month basis. Generally, you are an eligible individual for a month if you:
(1) are covered under a high-deductible health plan (HDHP) on the first day of that month;
(2) are not also covered by any other health plan that is not an HDHP (with certain exceptions for plans providing certain limited types of coverage);
(3) are not entitled to benefits under Medicare (generally, you have not yet reached age 65); and
(4) cannot be claimed as a dependent on another person’s tax return.
The maximum amount you can contribute to an HSA for the tax year is equal to the sum of the monthly limits for those months during the tax year that you are – or are considered to be – an eligible individual. The monthly limit is 1/12 of the applicable annual limit, which is subject to annual adjustments for inflation. For 2016, the annual limits are $3,350 if you have self-only coverage and $6,700 if you have family coverage. For 2017, the annual limits are $3,350 if you have self-only coverage and $6,750 if you have family coverage. If you are age 55 or older at the end of the year, you can make an additional “catch-up contribution” of up to $1,000 a year.
Distributions from your HSA are tax free to the extent you use them to pay for qualified medical expenses. Qualified medical expenses for this purpose are expenses you pay for your own medical care or for the medical care of your spouse or dependents, to the extent those expenses are not covered by insurance or otherwise. For this purpose, a child of divorced parents is treated as a dependent of both parents. The qualified medical expenses must be incurred only after the HSA has been established.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 03/03/2021 07:52)