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Are HSA Accounts Tax Deductible?

Health savings accounts (HSA) are savings accounts associated with high-deductible health insurance plans. Funds in HSAs are designated for qualified medical expenses. These funds can be used for a broad range of allowable expenses, and the Internal Revenue Service sets a limit on the amount that can be deposited each year into your account. Funds deposited into your HSA are tax deductible.

  1. Deposit Limits

    • Like IRA accounts, each year the Internal Revenue Service sets a limit on the amount that can be contributed to health savings accounts. In 2011, the amount that can be deposited into an individual health savings account is $3,050 for individual accounts and $6,150 for family accounts. If you are at least 55 years old, you can deposit an additional $1,000 "catch-up" contribution.

    Using HSA Funds

    • The IRS also has a list of acceptable uses for your HSA funds. They can be used to pay for medical expenses that apply to your health insurance deductible, but they can also be used for alternative treatments like acupuncture. If you are unemployed or in a waiting period before qualifying for group health insurance benefits, HSA funds can be used to pay COBRA premiums. Long-term care insurance premiums can also be paid from your HSA.

    Time Frame

    • Like individual retirement accounts, funds can be contributed into your HSA between January 1 and April 15 (or the date you file your tax return if before April 15) of the following year and credited to the prior year's tax return. Since HSA trustees are required to report deposits to the IRS, confirm that the trustee is crediting deposits to the correct year.

    Overfunding

    • If you contribute more than the allowed amount to your HSA, you can be assessed an excise tax on the amount above the maximum and any earnings attributed to the excess. If you catch the error before filing your tax return, you can avoid the tax by removing the overfunded amount and earnings on that amount from your account. If you file a return before catching the error, however, you will be assessed an excise tax.

    Carryover of Funds

    • If you do not use all of the funds in you HSA during the calendar year, you are permitted to carry over the funds from year to year. The funds in your HSA can accrue to be used for future medical expenses. Funds that are withdrawn for qualified medical expenses are tax-free, as are the earnings in your HSA.

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