HSA for America

Tax Deductions
You Don't Want to Miss

April 1, 2012
Vol. 8, Issue 4



It’s tax time again, but you have a partner to make that less of a pain.  Your HSA is working for you whether you want to reduce your taxes as much as the IRS allows, or you deposit just enough to turn your health care costs into tax deductions.  In this issue, I’ll talk about how much you can contribute, the forms you need, and some contributions that people sometimes miss.   

How Much Can You Contribute?

You have until Tuesday, April 17, to make a deposit to reduce your tax bill, and you can contribute up to $3,050 for individual coverage or $6,150 for a family plan.  If you’re at least 55, you can contribute an extra $1,000.

What HSA Funds Cover

Funds from your HSA can be used tax-free to pay for virtually any medical expense.  Here are some areas that people often overlook:

  1. If you get unemployment, you can use your HSA to pay for health insurance.
  2. Orthopedic shoes that are medically necessary can be purchased with HSA funds.
  3. HSA money can be spent on a vasectomy.
  4. Contact lenses and laser eye surgery can be paid for with HSA money.
  5. Programs to help you stop smoking can be paid for through an HSA.
  6. HSA dollars may be spent on wigs if hair loss is due to disease.
  7. Even if you are not currently eligible to contribute to an HSA, you may make a contribution for a period when you were eligible and did not make your contribution.

Remember that over-the-counter drugs can no longer be bought with HSA money without a doctor's prescription.  Insulin is an exception to that rule.  You can find a complete list of what your HSA can cover at

HSA Tax Forms

Your HSA administrator should send you and the IRS Form1099-SA and Form 5498-SA.  The 1099-SA form reports HSA distributions, but it lumps qualified and non-qualified distributions together, so you’ll need to clarify the nature of your HSA distributions on Form 8889.  Distributions shown on Form 1099-SA should be reported on line 14a of the 8889 form.

The 5498-SA form specifies contributions, distributions, rollovers and transfers to see if you exceed the maximum contribution.  This form is mailed at the end of May.

You don’t have to itemize deductions to claim your HSA contributions.  On line 25 of Form 1040, list your HSA deductions and attach Form 8889.  Pre-tax contributions made by your employer should not be included on line 25 because they have been included on your W-2.  Tax preparation software should complete Form 8889 for you, or you can get it from the IRS or other public places, like libraries, that distribute tax forms.

What If You Are No Longer Eligible for an HSA?

Don’t close your HSA if you become ineligible.  Your work or insurance situation might change so that you’ll be eligible to make HSA contributions in the future.  If you become eligible even years later, you can reimburse yourself from receipts you’ve saved for out-of-pocket health care expenses in previous years. 

And, remember, you can use your HSA money after you retire to pay for health care with tax-free dollars.  You won’t be allowed to contribute to an HSA after you turn 65, but you can continue to let HSA investments grow and withdraw funds to spend on whatever you like.  You still won’t be taxed for health care expenditures then, but you will be taxed for HSA money you spend on other things.  There’s just no penalty to worry about after you are 65.

If you continue to run a business after you are eligible for Medicare, you can deduct premiums for Medicare Part B, a Part D Prescription plan and a Medigap plan by paying for them through your HSA.  This deduction is available even if you don’t itemize deductions, and it is not subject the 7.5 percent of Adjusted Gross Income test that applies to other itemized medical expenses.

You won’t be able to claim this deduction if you continue to be covered under an employer-subsidized health plan from your or your spouse's employer, though.

I hope this information helps you get all of the HSA benefits you deserve for years to come.  Next time, I’ll share some more ideas to help you stay healthy and wealthy.


To your health and wealth!

President - HSA for America

P.S. – The Supreme Court just listened to arguments about the constitutionality of the healthcare reform law that mandates everyone purchase government-approved plans by 2014.  The court will make announce its decision in June, and I’ll be updating you on the ramifications.



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