Health Savings Account Tax Deduction

The health savings account tax deduction can provide you with a nice savings when you file your taxes at the end of the year. Setting up this type of account can give you a way to pay for medical expenses as well as give you some nice tax advantages as well. Here are the basics of the health savings account and how to claim a tax deduction for having one.

Health Savings Account

The health savings account is a special type of account that you can set up with any financial institution. With this account, you can make contributions to it in order to pay for medical expenses. When you deposit money into the account, it will start earning interest. The financial institution will provide you with a checkbook or a debit card to use for qualified medical expenses. This means that when you go to the doctor, pay for a prescription, or receive some type of treatment, you can simply pay for it with funds from the health savings account.

The big advantage that comes with having a health savings account is that you can deduct the amount that you contribute to the account from your taxable income. Essentially, this means that the government is allowing you to pay for health care expenses with part of the money that you would have had to pay them in taxes. This provides individuals with a great tool to use to help them save money on healthcare costs. The money that you earn in interest is also allowed to grow tax-free.

Qualifications

In order to take advantage of this program, you have to meet certain qualifications. First of all, you have to have a high deductible health insurance plan before you can open this type of account. According to the IRS, a high deductible is anything above $1000. If your deductible is $1000 or less, you should not worry about opening a health savings account. You will also need to work with a qualified financial institutions such as a bank in order to maintain your health savings account.

Deductions

The IRS only allows a certain amount of your contributions to be deducted from your taxable income for the year. Because of inflation, the government is continually raising the maximum contribution every year. As of 2010, you can contribute as much as $3050 to your health savings account as an individual. If the health savings account is for a family, you can contribute as much as $6150. If you are 55 years old, you can make an additional $1000 catch-up contribution. Any contributions above this limit will not be tax-deductible.

Claiming the Deduction

In order to claim the deduction, you will need to list it in the appropriate place on your tax return. This means that you need to list it on IRS form 8889 when filing your taxes. You will also need to list the total amount of your contributions on Form 1040.

blog comments powered by Disqus