HEALTH SAVINGS ACCOUNT (HSA)
A Health Savings Account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to income tax, but can only be used to pay for qualified medical expenses.
HSAs were established as part of the Medicare Prescription Drug, Improvement and Modernization Act, which was signed into law by President Bush on December 8, 2003. These accounts are a component of Consumer Driven Health Plans.
HSAs were established as part of the Medicare Prescription Drug, Improvement and Modernization Act, which was signed into law by President Bush on December 8, 2003. These accounts are a component of Consumer Driven Health Plans.
An HSA can alleviate the financial stress of a sudden medical emergency or even help you plan your budget for planned medical checkups, procedures or treatment. Use the funds toward your deductible or towards out-of-pocket expenses.
Are contributions to an HSA tax deductible?
You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040. The interest or other earnings on the assets in the account are tax free. Distributions may be tax free if you pay qualified medical expenses.
Are distributions from an HSA taxable?
HSA distributions are exempt from income taxes if all of the funds are used to pay qualified medical expenses that were incurred after the HSA was established. If any portion of a distribution is not used for qualified medical expenses, that portion is taxable as income and subject to a 20 percent penalty.
How do healthcare savings accounts work?
An HSA works in conjunction with high deductible health insurance. Your HSA dollars can be used to help pay the health insurance deductible and qualified medical expenses, including those not covered by the health insurance, like dental and vision care.