Tax Benefits of Health Savings Accounts
HSAs have a few tax benefits that other medical savings accounts do not. “One of the major advantages,” according to Mike Hayes, EA “is that there is no ‘use it or lose it’ requirement” with HSAs. You don’t have to spend all the money by the end of the year. Coupled with that, HSAs are portable, so they stay with you even if you change employers.
Here are some more tax benefits of HSAs:
- Interest or other earnings are tax free,
- Distributions are tax free if used to pay qualified medical expenses,
- Contributions to HSAs are deductible even if you do not itemize, and
- Employer contributions to your HSA through a cafeteria plan are excluded from income.
The maximum contribution for 2004 is the lower of your insurance policy’s deductible or $2600 ($2650 for 2005) for a self-only plan and $5150 ($5250 for 2005) for a family plan. You can make contributions to an HSA for 2004 until April 15, 2005, so there’s still time to set up an account.
Contact an Enrolled Agent for additional information about a health savings account and how it may benefit your tax situation. For more information about Enrolled Agents, contact Margaret Mitchell at 202-822-6232, or by e-mail at firstname.lastname@example.org. Log on to NAEA’s website at www.naea.org to find a qualified Enrolled Agent in your area who can assist you with your tax situation.