A health savings account deduction, often abbreviated as an HSA deduction, is a tax benefit offered to individuals who make contributions to a health savings account throughout the fiscal year. It means that any contributions made to a health savings plan can be deducted from one's income, which means that taxes will not be paid on this portion of income. As long as the funds in the health savings account are used for qualified medical expenses, it will never be necessary to pay taxes on them, and in most cases, any of the earnings collected from interest on the funds in the account are tax free as well.
Taking a health savings account deduction can be a great way to save money on taxes, and putting funds into a health savings account throughout the year is another good way to save money, and to ensure that medical expenses are covered. Health savings accounts are often offered with high deductible health insurance plans, in order to help individuals meet the deductible should something arise throughout the year. There is also the option to open this type of account on one's own through a bank, however; it does not necessarily need to go through one's health insurance.
There are generally limits on the amount of the health savings account deduction that can be claimed on one's income taxes. If the amount put in the health savings account goes over the deduction limit, this additional amount cannot be deducted. These amounts change for every tax year, so it is important to check the tax laws to see what the maximum health savings account deduction is for the tax year for which one is filing. Unlike many other income tax deductions, it is not necessary to itemize in order to claim this deduction; it can be claimed in addition to the standard tax deduction, or to itemized deductions.
It is important to make sure that the funds used from the health savings account are only used for qualified medical expenses. Otherwise the tax benefits, such as the health savings account deduction or the fact that withdrawals and interest earned are tax free, may be forfeited. Each HSA will provide guidelines to its members regarding qualified medical expenses, typically including items such as doctor or emergency room visits, hospital stays, and prescription medications, just to name a few. If the funds in an HSA are not used, they typically simply roll over from year to year without incurring any losses or penalties.
