Filing Taxes With Your HSA
John is a saver. When John signs up for an HSA he knows he could save a total of $6,450 in 2013 by contributing the maximum for his family plan. For each paycheck in 2013 he will contribute $248.07. This accumulate to his HSA contribution limit for the year on the 26th paycheck.
John saved 35% in taxes ($2,257) on his contributions. He also invested the money in a mutual fund and will continue to make earnings tax-free. John’s long term plan is to contribute the maximum each year until he turns 65. When he turns 65 he can withdraw all of his HSA savings without penalty. The income tax he will pay will be much lower than his current income tax. He will also continue paying for medical expenses with his savings completely tax-free.
If you have an HSA, the only extra step you need to take is to file IRS Form 8889. You can look at our complete guide on filing taxes with a Health Savings Account:
- Filing Taxes with an HSA: Part One
- Filing Taxes with an HSA: Part Two
- Filing Taxes with an HSA: Part Three
- Filing Taxes with an HSA: Part Four
- Filing Taxes with an HSA: Part Five
If corrections are not made, over-contributions to your HSA and distributions for non-eligible medical expenses would be taxed. The amounts that are over-contributed or spent on ineligible expenses would be subject to both income taxes and a penalty tax. If either of these mistakes are made, it may be possible to correct the mistake and avoid taxes on the amounts that were over-contributed or used incorrectly. IRS form 8889 provides further information on how the taxes are calculated. Also, in some states, HSA contributions and/or earnings are subject to state taxes.
At Tango Health we do our best to keep up with the changing tax laws. It is important to keep in mind though that this information could be out of date. It is best to consult a tax professional to determine your tax liability.