With the popularity of high deductible medical insurance plans on the rise, an increasing number of people are eligible to contribute to a Health Savings Account (HSA).
Employee or individual contributions to a Health Savings Account are either tax-deductible when made from payroll or deductible on the first page of the 1040 tax return. As a result, a taxpayer does not have to itemize their deductions in order to receive an immediate tax savings for their contribution.
Unlike a flexible spending account, contributions to a Health Savings Account do not have to be spent within the calendar year of the contribution. Savings can be retained for future use and earnings from the interest or investment gains are tax-deferred. Distributions for qualified medical expenses are tax-free. Non-qualified distributions are subject to both tax and penalty.
HSA contribution limits are as follows:
2012
Individual: $3,100
Family: $6,250
Catch-up for individuals age 55 (not 50!) and older: An additional $1,000 for a total of $4,100 or $7,250
2013
Individual: $3,250
Family: $6,450
Catch-up for individuals age 55 (not 50!) and older: An additional $1,000 for a total of $4,250 or $7,450
Contributions can be made for the prior calendar year by the tax-filing deadline. The contribution limit includes both employee and employer contributions. The maximum contributions may be limited by partial year health plan participation and/or Medicare eligibility. Please consult a qualified tax professional for any questions in regard to eligibility.
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