Tax Savings

Your HSA Administrator will send you a statement at the end of each year outlining how much you contributed to your HSA. As long as that amount does not exceed the maximum allowable contribution, it's tax-deductible on your federal tax return. The health accounts also are shielded from state income taxes in most of the country, but seven states have declined to provide an exemption: Alabama, California, Maine, Massachusetts, New Jersey, Pennsylvania and Wisconsin.

HSA contributions made through payroll deductions are generally made with pre-tax income. If you fall into this category, you do not need to claim the deduction as your income has already been reduced. However, any contribution made by you or any person other than your employer on your behalf may be claimed as a deduction.

HSA deductions are considered ¡¥above the line,¡¦ meaning they don¡¦t need to be itemized when you file your taxes.

If you¡¦re self-employed, you may also be able to deduct your health insurance premiums as long as the deduction does not exceed the amount of net income from your business and you are not eligible to participate in a subsidized health plan by an employer or your spouse¡¦s employer.

If your HDHP coverage begins after January 1, contribution limits are pro-rated based on the number of full months the HDHP is in effect.

Unused contributions remain in your account year to year until you use them and any interest or earnings on the assets in your account are tax-free as long as they are used for medical expenses. Early withdrawal is subject to income tax and potential penalty.

Once you reach retirement age, your HSA account acts just like a traditional IRA ¡V non-medical withdrawals are considered tax-deferred and are subject to income tax (but no penalty).

As with all things that have to do with taxes, please rely on your tax advisor for tax advice.