John R. Bullis: Health savings accounts briefly explained

The health savings account is a wonderful thing!

Contributions (that are qualified, or allowed) are an income tax deduction on page 1 of Form 1040, whether itemized deductions on Schedule A are done or not. And employers can contribute to an eligible person’s health savings account. The employer contribution is not included in taxable income.

But you do not need to be employed to be eligible to do contributions.

Distributions from the health savings account to pay medical expenses are not taxable income.

A deduction is allowed for what the eligible individual pays to the HSA (not the tax-free employer contributions). However, distributions are not taxable income if paid for medical expenses. That is as good as it gets.

However, once a person is eligible to receive Medicare (age 65), no more contributions can be done to a health savings account.

The balance in a health savings account can be used for medical expenses after age 65.

For someone less than 65 years old, the contributions are limited to what Congress says is allowable. In 2017, the maximum contributions for family coverage is $6,750 and for individual coverage (known as self-only) is $3,400. Plus another $1,000 if the individual reaches age 55 by the end of 2017.

For a married couple, both spouses can make the catch-up contributions for individuals age 55 or older.

When the health savings account began, there was a concern it would only be a benefit for wealthy taxpayers. Since there is no requirement to take disbursements or reimbursements for medical expenses paid, the account could accumulate a good sized balance. It could be sort of a special retirement plan. And it can pay medical expenses you incur after age 65.

Many of our clients that pay less than the 25 percent tax rate have health savings accounts. It works well for them, not only for the income tax savings, but also to keep track of the medical co-pays and other medical expenses.

Perhaps you or a family member could benefit from looking to the health savings account?

Did you hear? “Learning is not compulsory, neither is survival,” by Peter Zwack.

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.


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