Premium and Tax Savings
Health Savings Accounts can help you save money on both your insurance premiums, and your income taxes. Because Health Savings Accounts must be paired with a high-deductible health plan, your health insurance premiums are normally much lower than a typical plan that has a $500 deductible. And there is no other investment that offers a tax deduction today along with a tax-deductible withdrawal tomorrow. The savings from the lower premiums along with the tax-free deductions could be $5,000 or more every year.
Below is an example comparing how much a typical Non-HSA plan might cost, compared to a typical HSA plan. This example is based on the average health insurance premium of an individual with a family of four living in a metropolitan area, covered medical expenses totaling $1,500, and $550 in expenses for dental care, contacts and eyeglasses. This shows what would happen if the HSA holder is in a 28% federal tax bracket and 5% state tax bracket, and deposits $6,750, the maximum contribution allowed, into his HSA.
This example is based on the average health insurance premium of an individual with a family of four living in a metropolitan area, covered medical expenses totaling $1,500, and $550 in expenses for dental care, contacts and eyeglasses. Health insurance premiums vary substantially based on age, geographic location and other variables. Federal tax savings calculations assume that contributions are deducted from federal taxes. Withdrawals for nonqualified expenses prior to the age of Medicare eligibility are subject to a 10% penalty by the IRS.
All HSA plans have an aggregate deductible where one or all family members contribute and work towards meeting a single deductible. You have until April 15, 2016 to make contributions to your HSA and claim it on your 2015 tax return.
Note: In addition to the tax and premiums savings shown above, self-employed individuals are also eligible to deduct 100% of their health insurance premiums from their federal income tax.
* Your rate may vary. Assumes a 28% federal tax bracket and 5% state tax bracket on deposit of $6,450. Most states allow for state tax deductions on HSAs. Use the Federal Tax Table below to determine your marginal Federal tax rate based on your taxable income.
A chart showing the actual savings on Federal income taxes, based on income level and HSA contribution amounts, can be seen on our HSA Tax Savings page. You can also use our HSA Tax Savings Calculator to calculate the tax savings for your own particular situation.
HSA for America and its affiliates are not engaged in rendering tax, investment or legal advice. Federal and state tax regulations are subject to change. If tax, investment or legal advice is required, seek the services of a licensed professional. If you are looking for a CPA familiar with health savings accounts, please visit our CPA Resources page.