Federal Tax Benefits for an HSA*
Contributions made to an HSA are fully tax deductible; the earnings
grow tax deferred; and distributions for qualified medical expenses
are tax free.
Contributions made by anyone excluding your employer may be deducted
as long as they do not exceed the maximum annual contribution amount.
Contributions from employers are not wages for federal income tax purposes.
Taxed HSA Distributions*
distributions are used only to pay or reimburse qualified medical
expenses incurred by you, your spouse, and your dependents. Expenses
not qualified are not included in gross income.
other distributions are either included in income or rolled
over. Distributions which do not roll over and are not used
for paying or reimbursing
qualified medical expenses are subject to taxation. A 10% tax
will be charged unless distributions are made after your death,
your disability, or you have reached age 65.
Qualified medical expenses must only occur after the HSA has been
established. The Internal Revenue Service (IRS) released Notice 2004-25
providing transition relief for the calender year 2004. This applies
only to eligible individuals who establish an HSA on or before April
*Consult a tax professional