Last-Minute Tax-Saving Tips and How to Build Wealth
in Your HSA
April 1, 2014
Vol. 10, Issue 4
Unless you truly enjoy writing checks to Uncle Sam, you’re likely on the lookout to find as many tax deductions as possible before April 15. If you haven’t checked out your health savings account (HSA) lately, now’s the time to see if there’s room to squeeze in a few more dollars. As long as your HSA-qualified plan was in place by December 1, 2013, and your HSA was established by December 31, 2013, you can make contributions up until April 15 in order to claim a deduction on your 2013 tax return.
For 2013, individuals can contribute up to $3,250 into an HSA, and families can contribute up to $6,450. If you’re 55 or older, you can also contribute an additional $1,000 as a “catch-up” contribution. HSA contributions are deducted on page one of your federal tax return (similar to student loan interest) and directly lower the amount of taxes you owe. And you don’t have to itemize to claim an HSA deduction!
An individual who fully funds his or her HSA for 2013 can save as much as $1,072.50 in taxes, while a family can save as much as $2,128.50 (assuming a 28 percent federal tax rate and 5 percent state tax rate). Savings like that could pay for a nice spring break vacation!
Additional 2014 Tax Tips
If you’ve over-funded your HSA, be sure to contact your HSA administrator and request a withdrawal form to withdraw the excess money; otherwise, you will be subject to a tax penalty. You can also redirect excess funds to 2014 rather than 2013.
If you know you’re not quite ready to file your tax return, individuals have until April 15 to apply for an extension, and businesses have until the due date of their return to file an extension. Even though you’ve filed an extension, be aware you will still owe a penalty fee for filing late in addition to any taxes you may owe.
If you normally take a deduction for business use of your home – or maybe you’ve avoided this deduction in the past for fear of an audit – the IRS now offers a simplified method for calculating this deduction. You could qualify for a deduction of up to $1,500 by using this simplified method.
How to Use Your HSA Money Tax-Free
As long as you use your HSA to pay for qualified medical expenses, your money remains completely tax-free. And because you’re using your own money to pay for medical expenses, including deductibles, coinsurance and other medical expenses, you’re being a smart consumer.
To maximize your savings, shop around before receiving medical care if possible. You would be surprised at how much the price of a simple MRI varies from hospital to hospital. You could easily rack up hundreds of dollars in savings just by calling around before receiving medical service. Read more about price transparency and how to save on medical expenses by reading our recent blog “Avoid Sticker Shock and Demand Price Transparency.”
If you find it necessary to withdraw money from your HSA for non-qualified expenses or other personal reasons (prior to age 65), you will be subject to a 20 percent federal tax penalty. After the age of 65, you can use your HSA for anything you deem necessary, and the withdrawal is only taxed as retirement income.
How an HSA Can Help You Qualify for a Premium Subsidy
When you claim an HSA deduction on your tax return, it ultimately lowers your modified adjusted gross income, or MAGI. Your MAGI is the “magic number” the government uses to determine your eligibility for premium tax credits that help lower your health insurance premiums.
As you can see on our subsidy Web page, if you make less than 400 percent of the federal poverty level you qualify for a premium subsidy. But if you make just $1 over the income limit, you are disqualified from receiving premium assistance. The amount of your subsidy can also change by simply making $1 over the income level in any income bracket.
By contributing to an HSA, you can significantly lower your MAGI and not only reduce your taxes, but possibly qualify for thousands of dollars in premium assistance to help minimize your premium payments and maximize your health care benefits.
Obamacare Deadline Extension for Some
The official deadline to apply for a health plan was March 31; however, anyone who missed the deadline and is without coverage can request an extension, at least for the next couple weeks. Low-cost short-term plans are also still available year-round.
The next open enrollment will take place in the fall. But should you experience a qualifying event in the meantime such as job loss, marriage, divorce, or birth of a child, you will qualify for a special enrollment period – so be sure to keep your options open.
To your health and wealth!
"A day on the slopes with the family Christy, Wiley IV and Wiley III"
President - HSA for America