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How Your HSA Can Help You Save More This Tax Season

How Your HSA Can Help You Save More This Tax Season

 

The Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction for individuals (from $6,350 to $12,000) and married couples filing jointly ($12,700 to $24,000). For many taxpayers, this means choosing the new standard deduction (rather than itemizing their deductions) might help them get more money back on their 2018 tax returns.

However, one valuable feature of itemizing deductions is that taxpayers can deduct medical expenses exceeding 7.5% of their adjusted gross income (AGI) for the 2018 tax year. If you had high medical costs in 2018 and choose to itemize your deductions, you can get a tax deduction for any healthcare costs that are more than 7.5% of your AGI. By opting for the standard deduction, you lose the ability to get any additional medical deductions.

HSA accountholders have an ace up their sleeves, though; HSA contributions are either pre-tax if done through payroll withholding or tax-deductible if contributed after-tax. And better yet, you don’t have to itemize to get the tax deduction. That means you always get a tax break when you pay for qualified medical expenses with an HSA, regardless of what deduction you choose or whether your healthcare costs exceed the AGI threshold.

Also, if you don’t have enough funds in your HSA to cover a healthcare cost you incurred that year, you can pay out of pocket and reimburse yourself for that expense once you have more in your HSA. It’s like a tax deduction you can carry forward indefinitely; there’s no time limit on how long you can wait to use HSA funds to reimburse yourself for a medical expense.

If you’d like to choose the standard deduction on your tax return but also want tax breaks for your medical expenses, an HSA enables you to get both. And in addition to not being taxed upon contribution, HSA funds are tax-free as they grow, as well as when they’re withdrawn to pay for or reimburse qualified medical expenses. If saving on taxes matters to you, an HSA is the unquestioned best way to pay for your healthcare costs. Learn more about HSAs’ unparalleled tax advantages or get your own account here.

Author: Craig Keohan

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