Can I Take a Health Savings Account Deduction Even If I Take the Standard Deduction on My 1040?

Health savings accounts that you fund yourself are eligible for a deduction from your income as an adjustment to your gross income, and this adjustment is available to you whether or not you claim the standard deduction and choose not to itemize. HSAs are only available, however, if you qualify for one by having the appropriate health plan covering you or your entire family, and you are restricted in the amount that you may contribute each year.

Qualifying High-Deductible Plan

To contribute to an HSA and make tax-deductible contributions to this account, you must be covered by a qualifying high-deductible health plan. At the time of publication, qualifying health plans for an individual must have a minimum deductible of $1,200, and the out-of-pocket maximum expenses per year can be no more than $6,050. A family plan must have a minimum deductible of $2,400, and an out-of-pocket maximum of no more than $12,100.

Maximum Contributions

If you have individual coverage with a high-deductible health plan, you can contribute up to $3,100 per year to an HSA. If you are covered by family coverage, you can contribute up to $6,250. This increases by $1,000 per year if you are age 50 or over. You, your employer, or another individual can make contributions to your account up to the allowable maximum.

Fully Deductible

All eligible after-tax contributions to your HSA are fully deductible on Form 1040, line 25, after completing Form 8889. Also, by reducing your adjusted gross income, HSA contributions could increase the deductibility of other itemized expenses, such as employee business expenses, which are subject to a minimum percentage of adjusted gross income.

Taxes and Penalties

HSA disbursements may be taken to pay for health care related expenses at any time without tax or penalty. After age 65, you can still take disbursements for any reason and they are not subject to a penalty, but they are included in your taxable income to be taxed at your ordinary income tax rate. Withdrawing from your HSA for non-medical reasons before the age of 65 will result in a 20 percent tax penalty on the amount withdrawn as well as income taxes on that amount.