How Does A Health Savings Account Affect My Taxes
Posted On: Wednesday, January 19, 2022
The HSA account can be a powerful tax-saving tool. It’s important to understand how it works and what it’s benefits are. Here is a breakdown of what the health savings account is all about and what benefits it provides.
What is a Health Savings Account?
A Health Savings Account (HSA) is designed to provide individuals with tax-free funds to pay qualified medical expenses. This provides a safety net for those who already have health insurance but need additional protection against high deductibles and other out-of-pocket medical expenses.
The Impact of a Health Savings Account On Your Taxes
1. Payroll Deductions
Employee contributions to an HSA made through payroll deductions are excluded from your gross income. This results in pre-tax funds being available to spend on qualified medical expenses.
2. Employer Contributions
If an employer decides to contribute to the HSA, this amount is also excluded from gross income. This means all contributions into the HSA during the year are pre-tax.
3. Earnings Are Not Taxed
Any earnings within the account from interest and investments are not taxed.
4. Distributions
Distributions from the account that are used to pay for qualified medical expenses are tax-free.
This means the total gross amount that is in the account is yours to use for qualified medical expenses.
5. Stays With You As Employers Change
If you change employers, your HSA can move with you. Your new employer can take over the administration of your account or you can roll your funds over into a new HSA..
This is useful for those who are constantly changing jobs but want to maintain their HSA account.
Final Thoughts
These are some of the details to think about when it comes to a health savings account (HSA). The HSA can be a powerful tax savings tool that provides pre-tax funds to be spent on qualified medical expenses.
Contact Rakatansky, Rakatansky & Associates
A secure financial future for individuals and businesses requires planning – developing a complete financial strategy for taxes, investing and transfer of wealth. At Rakatansky, Rakatansky & Associates we work with you to understand your current and long-term goals and develop a comprehensive plan to realize them.
As a partner in Rakatansky, Rakatansky & Associates, Alex is a CPA with over 15 years of experience providing practical tax, audit, accounting and consulting services to business, individuals, trusts and estates.
Contact: alex@rakatansky.com or Call: 508-872-0101