Why Everyone Who Qualifies Should Have a Health Savings Account
As a small business owner, you know how important it is to save money whenever possible. One great way to do this is by taking advantage of health savings accounts (HSAs). HSAs are tax-advantaged savings accounts that can help you save for medical costs, such as qualified medical expenses, including deductibles, copayments, coinsurance, and certain prescription drugs. Not only will an HSA help you build up funds for future medical expenses, but the contributions you make to it are also tax-deductible, AND distributions from an HSA are not subject to federal income taxes if they are used to pay for qualified medical expenses, such as doctor visits or prescriptions drugs. Let’s take a look at some of the tax benefits of having an HSA and how to qualify.
HSAs offer significant tax advantages. Not only do the funds in your account grow over time without being taxed, but any contributions you make to it are also deductible from your personal taxes as long as they meet certain criteria. For example, if you’re self-employed and don’t have access to an employer-sponsored plan, then you may be able to deduct 100% of your HSA contributions up to the maximum contribution limit for the year, which are:
· 2022 contributions limits $3,650 for individuals or $7,300 for families, these amounts go up for
· 2023 to $3,850 for individuals and $7,750 for families, and
· if you are age 55 or older there is an additional $1,000 “catch up” contribution,
· Furthermore, if you own a business with fewer than 50 employees, then contributions made on behalf of your employees are also deductible from your taxes.
In order to qualify for an HSA, there are certain requirements that need to be met. First off, you must be enrolled in a high-deductible health plan (HDHP), which for 2022 requires your deductible be at least $1,400 annually in out-of-pocket medical expenses before insurance kicks in ($2,800 for family plans). In 2023 these deductible limits go up to $1,500 for individuals and $3,000 for families. Additionally, if you’re covered by Medicare or another health plan that doesn’t meet HDHP requirements—or if someone else claims you as a dependent on their taxes—then unfortunately you won’t be eligible for an HSA.
Another great feature about HSA’s is that you can contribute to them up until April 15th of the following year, and still get to take any amount contributed to the HSA as a tax deduction for the prior tax year – so for the 2022 tax year you can make a contribution to an HSA up until April 15th 2023 and still take the deduction on the 2022 tax return.
You can contribute towards your HSA by making pre-tax payroll deductions from yourself or your employees or by making post-tax deposits directly into the account. You can also use funds from other sources such as investments or gifts from family members or employers—just keep in mind that these funds must always come solely from yourself or others who are not claimed as dependents on someone else's taxes in order to remain tax deductible.
Long term benefits of HSA’s
· Contributions left in the HSA at year end accumulate, after a number of years the balance can be substantial
· Taxpayers are no longer eligible contribute to an HSA after age 65. However, any money in the HSA can be pulled out for any reason, but if the distribution is not used for medical expenses it will be subject to income tax