As a CPA, I have prepared many tax returns over the years. One of the most frustrating items (for me and for my clients) has always been health care. The cost, the access, the complications around it, and then the general inability to get full credit on your taxes. This brings us to the HSA (health savings account).
Most taxpayers find the new standard deductions to be difficult to surpass, meaning they simply don’t end up itemizing their deductions. Even before the new tax reform went into effect, the out of pocket medical deduction was limited to a percentage above and beyond your adjusted gross income (meaning a lot of your expenses didn’t even count). To avoid complicated explanations and adding fuel to the fire, I’ll get to the point. The HSA was a vehicle to take back the tax deduction.
So how does it work? Well, somewhat similar to a retirement account, it’s a pre-tax deferral vehicle. This means you fund your account (subject to limits, approx. $7000 for a family per year) and that money is fully deductible on your tax return (even if you don’t use it all for medical that year). Those funds can often be invested or gain interest over time as well. Or, you can simply use those funds for qualified medical or reimburse yourself for qualified medical expenses paid separately by you.
What are the important points? Well, not everyone qualifies for an HSA. You have to have a high deductible plan, and you will need to check with your insurance provider to make sure your plan is compatible. If you qualify, then it’s a good idea to look at this as an option if you expect to have any medical expenses. In my experience, it is one of the only ways to ensure you get credit for those expenses, and it’s so often overlooked. With the outrageous cost of healthcare, you should at least ensure you get credit on your taxes. And if you own a business, don’t overlook the HRA, which was recently upgraded as well.
-until next time