Health Savings Account (HSA) & Its Tax Benefits
What is an HSA
An HSA is a government-regulated savings account that allows you to set aside income to cover health care costs that aren’t paid by your insurance. Health savings accounts are only available to people who have a qualifying, high-deductible insurance plan.
You can’t contribute to an HSA if you’re enrolled in Medicare or if you’re a dependent on anyone’s tax returns. But you can contribute to an account if you decline Medicare when you turn 65.
For self- employed individuals, (if you have the proper business entity established) an HSA is a HUGE opportunity to save you money on taxes. It can save you money on taxes now, and give you help in case of a medical emergency.
Tax Benefits of an HSA
1. Contributions are tax-deductible, so they reduce your federal income taxes owed. In simple terms, you are putting pretax income into a savings account that is tax deductible!
In 2019 individuals can contribute up to $3450 and families up to $6850.
2. Assets in your HSA account typically grow tax-free, at least at the federal level.
The rate at which your funds grow varies by provider. Some HSA Providers offer more favorable rates. You will want to research providers to find which one suits your needs the most.
3. Funds can be withdrawn without being taxed by the IRS if you use them for qualified medical expenses.
It is always a good idea to have a backup plan if there is a medical emergency. An HSA is a great option to help you or your family in a time of need.
To qualify for the tax benefits of the HSA, you will need to have the proper business entity in place. To get a business entity established or find out how you can write off your HSA contributions, we can help you out. Request a consultation to find out how.