Year End Tax Tips: Deductible HSA Contributions

If you have a high deductible health plan, you may also have a health savings account (HSA). HSA contributions are tax deductible on Form 1040 subject to the 2011 HSA contribution limits.

Health Savings Account (HSA)

As you may know, a health savings account (HSA) is a special account that you can establish in conjunction with a high deductible health plan. A health savings account isn’t required but there are certain tax benefits for having one. In addition to the tax benefits, a health savings account makes it easy to save money for future medical expenses. When the need arises, the money will be there to pay for out-of-pocket costs. It’s kind of like an emergency fund for medical expenses.

Contribution Limits

Like any other tax favored account, there are limits on how much you can contribute and deduct on your income taxes. The maximum HSA contribution depends on whether you have a high deductible health plan for yourself or your family. The 2011 HSA contribution limits for self only coverage is $3,050. The contribution limit for family coverage is $6,150. Tax Form 8889 is used to compute the HSA deduction which is reported on the first page of Form 1040.

Contribution Deadline

Like a traditional IRA, the contribution deadline for a health savings account is the same date that your income taxes are due. So the deadline for the 2011 tax year is April 17, 2012. In addition to the deductible HSA contributions, any unused funds can grow on a tax deferred basis until they are needed to pay for qualified medical expenses. Unlike a traditional IRA, funds withdrawn to pay for qualified medical expenses are tax free.