HSAs: What Do You Do At Tax Time?
You don’t have to itemize your HSA contributions to get the tax write-off for medical expenses. It comes right off the top — above the line — and gets deducted from your gross income.
On your personal income tax return, the amount of your HSA should ideally equal the limit of your allowable deduction under your insurance plan. To make up any difference, the law allows you to contribute to your HSA as late as April 15 of the year after the current tax year. Use the Contribution Calculator to determine the maximum amount you can contribute and still get the tax advantage. Amounts over this maximum may incur tax penalties.
All eligible contributions into an individual or family HSA are exempted from personal income tax. It doesn’t matter whether or not you spend all the money in the HSA in that tax year.
Rules for Reporting Premium Costs and HSA Contributions
Contributions into an HSA can be made either by an individual or by an employer. If you make the contribution, the amount is DEDUCTIBLE from your TOTAL INCOME. In 2004 this deduction is on line 28 of Form 1040. The line may change for 2005, but it will be in the section for “Adjustments to Gross Income.” Similar deductions are reported in this “AGI” section — Lines 23 to 34 on your 2004 tax form. A rundown of your contributions and disbursements may be noted on a separate schedule (Form 8889) to be attached to the 1040.
If your employer contributes to your HSA, the amount is EXCLUDABLE from your WAGES (Line 7 on the 2004 Form 1040). The excluded amount is supposed to be noted on your W-2 paperwork, but you should check to make sure your wage figure, which is minus your employer’s contribution, is correct on your W-2, so you can enter a correct amount on Line 7 on the Form 1040.
If your employer paid for all of your health insurance premiums , only that employer is entitled to deduct this sum as a business expense. You can’t deduct the premium costs.
If you paid part of the premium out of your salary, your costs for the premium will be noted on the W-2, but this sum is not excludable from your wages.