HSA for America

Strategies to Help Reduce Your 2013 Tax Liability and
Avoid Penalties

March 1, 2014
Vol. 10, Issue 3

Before you write Uncle Sam a tax payment check on April 15, make sure you’ve exhausted all of your options to help reduce your tax liability. One of the most important deductions to look into is your HSA contribution for 2013. To get the most benefit from your HSA, you’ll want to maximize your 2013 contributions.

Contribution limits for 2013 are $3,250 for an individual or $6,450 for a family. HSA Contribution limits for 2014 have increased to $3,300 for an individual and $6,550 for a family. You have until April 15 to continue making contributions to your HSA to count as a deduction on your 2013 tax return. When I say deduction, I mean deduction off page one of your federal tax return – just as you would student loan interest. This directly reduces your adjusted gross income and therefore reduces your tax liability.

Review Your HSA Tax Forms for Accuracy

You should receive IRS form 1099-SA, which shows all withdrawals made from your HSA. Eligible expenses are documented as code 1, or normal. Non-qualified expenses are grouped along with qualified expenses and need to be clarified by completing form 8889. All nonqualified withdrawals are subject to taxes as well as a 20 percent penalty.

You’ll also receive IRS form 5498-SA, which provides a total of your HSA contributions, but you won’t receive this until after your have filed your taxes. HSA contributions can also be found on your HSA statement and on your W-2 if your employer made any contributions.

Correcting an Overfunded HSA

To avoid penalties, you still have a chance to remove the excess funds by the tax filing deadline, typically April 15. You have to complete the “Excess Contribution Removal Form,” which you can obtain from your HSA administrator, and mail it to your HSA administrator.

Even if you have corrected the excess contribution before the tax filing deadline without owing any tax penalties, if the excess contribution earned money while in the HSA, you will have to pay taxes on those earnings.  Since earnings are usually very small, it isn’t a huge tax issue for most HSA owners.  However, the IRS has its own method for calculating earnings so the result might be different than what you may expect.

The IRS imposes a six-percent tax penalty every year if the excess isn’t corrected by your tax-filing deadline.  If you don’t want to pay that six percent every year, correct it before April 15.  Correct your excess contributions as soon as possible, and remember to account for deposits from employers or family members.

How Tax Returns Affect Health Care Premium Subsidies

And this year, HSA contributions can hold the key to whether or not a taxpayer qualifies for premium assistance under the Affordable Care Act. To qualify for an advance premium subsidy under the Affordable Care Act (ACA), you’re required to estimate your 2014 modified adjusted gross income (MAGI). This isn’t always easy, especially if your income is unpredictable or changes throughout the year.

If your 2014 tax return reflects a higher MAGI than you estimated, you may wind up having to repay Uncle Sam all or part of your advance premium subsidy, although these repayment amounts are capped at $300 per individual or $600 per family. The ACA has also made it clear that the IRS will not actively seek to recover these payments, but can withhold overpayments from future tax refunds.

There is an upside to all of this–if you overestimate your income for your advance premium subsidy application, you may get reimbursed for the underestimated subsidy amount. Uncle Sam may instead be writing YOU a check come April 15th. I discussed how to report changes in your income that affect your premium subsidy in a recent blog post, which you may find useful.

I hope you fare well this tax season and keep as much of your money as possible in your pocket and not Uncle Sam’s.

To your health and wealth!

"Wiley III and Wiley IV - Ready for spring!"

Wiley Long
President - HSA for America


HSA for America
749 S. Lemay Ave, Suite A3-116
Fort Collins, CO 80524
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