What are the tax advantages of an HSA?
The tax advantages of an HSA make it a powerful long-term savings vehicle.
- Employees can contribute funds to an HSA on a pre-tax basis, or contribute post-tax and recognize the same tax savings by claiming the deduction on tax returns.
- HSA funds can be used to pay for eligible medical purchases at point of sale, or as reimbursement for out-of-pocket costs.
- HSA funds earn tax-free interest. Unlike most savings accounts, interest earned on an HSA is not considered taxable income when the funds are used for eligible medical expenses.
Employers also enjoy tax benefits from HSAs, because employee contributions reduce taxable income, and in turn, the employer's payroll taxes.
Non-eligible purchase and contributions that exceed the yearly maximum contribution limit may be subject to tax penalties. Consult a tax professional to correct these penalties by April 15 of the following calendar year.
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