How to Contribute Pre-tax Dollars to Your HSA

HSAs allow tax savings on your medical expenses.

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A health savings account is a useful way to set aside money for medical expenses. The HSA pre-tax plan allows you to contribute "pre-tax" money to the account, meaning the IRS will not levy income tax on that money, no matter how you earn it. You can use the HSA funds for qualified medical expenses, such as visits to the doctor, prescriptions and insurance. Contributing funds to an HSA is a fairly simple process.

Contribute to Your HSA from your Paycheck

Your employer may allow you to have your HSA contribution deducted automatically from your paycheck. The payroll department will transfer the money directly from its account to the HSA account, and that transfer will be reflected on your pay stub. You will not be taxed on the money that is tranferred to the HSA account. If the HSA contribution lowers your paycheck significantly, you can adjust income tax withholding by filing a new Form W-2 with your employer and increasing the number of allowances. If your employer does not offer automatic transfers, you have two further options for making the contributions.

Make Contributions from Your Bank Account

Another option that may be available depending upon your account terms is a direct withdrawal from your bank. Have the HSA account manager set up an automatic withdrawal from your checking account directly into the HSA. This transaction will show up on your printed bank statement every month, and should also be viewable online if you have set up Internet banking. The contribution is tax-deductible. You will have to fill out a form provided by the HSA manager, which will list your bank name, account number and routing number. You can choose the amount of the contribution and the day of the month (approximately) on which the HSA will make the transfer. Make sure you have adequate funds in the account to cover the withdrawal on the appointed day.

Make a Contribution the Old-Fashioned Way: Write a Check

You could also make the contribution on your own by writing a check to the HSA account or by sending a certified check or money order. Don't send cash through the mail. The IRS allows you to deduct this money from your income, but limits your annual contribution.

HSAs are for Individual Medical Use Only

If you withdraw HSA money for non-medical purposes, the IRS will levy a 20 percent penalty on the withdrawal. Further, HSAs are for individuals. The IRS does not permit joint HRA accounts, and requires anyone holding an HSA to be enrolled in a high-deductible medical insurance policy.

You may keep the money in an HSA account until you use it for medical expenses. There is no requirement to use the money within a limited period of time. In addition, there is no tax on any income the money earns.

HSA Employer Contributions Count Toward Your Limit

Your employer may also contribute to your HSA; the IRS does not include these contributions in your gross income. You may keep the HSA even if you change employers. If your employer contributes to your HSA with its own money and not yours, you must reduce your own contributions accordingly.

2017 and 2018 HSA Contribution Limits

The limit for individuals in 2018 is $3,450 if you have an individual insurance policy, and $6,900 if you have family coverage. The IRS revises these amounts upward regularly. There are different limits if you were not covered by insurance during the whole year, or if you changed your coverage. If you contribute more than the limits, the excess will be subject to a 6 percent excise tax.

Tips

  • You may keep the money in an HSA account until you use it for medical expenses. There is no requirement to use the money within a limited period of time. In addition, there is no tax on any income the money earns.
  • Your employer may also contribute to your HSA; the IRS does not include these contributions in your gross income. You may keep the HSA even if you change employers.

Warnings

  • If you withdraw HSA money for non-medical purposes, the IRS will levy a 20 percent penalty on the withdrawal.
  • HSAs are for individuals. The IRS does not permit joint HRA accounts, and requires anyone holding an HSA to be enrolled in a high-deductible medical insurance policy.

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About the Author

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.


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