You must report your HSA deposits and withdrawals on Form 8889, Health Savings Accounts, and file it with your Form 1040 each year. This means that if you want to use your HSA money for anything other than medical expenses after age 65, you will have to include it in taxable income but will not have to pay the additional 20% tax. The additional 20% tax does not apply if you are age 65 or older, disabled or deceased. If you take a distribution from your HSA and do not use it to pay a qualified medical expense, you must include the gross distribution amount in your taxable income for the year and pay an additional 20% excise tax. What Happens With Distributions Not Taken to Pay for Qualified Medical Expenses? Medicare and other health care coverage for those ages 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).Health care coverage while receiving unemployment compensation under federal or state law, and.Health care continuation coverage (such as coverage under COBRA),.Health insurance premiums are generally not counted as qualified medical expenses, unless they are for Here are just some examples of health care expenses that may be paid with HSA assets: This includes payments for medical services rendered by physicians, surgeons, dentists, and other medical practitioners, as well as the cost of equipment, supplies, and diagnostic devices. Medical expenses are the costs for diagnosis, cure, mitigation, treatment, or prevention of disease for any part or function of the body. Generally, qualifies for the federal income tax deduction for medical or dental expenses (see IRS Publication 502, Medical and Dental Expenses)Ī qualified medical expense may be incurred by you, your spouse or your dependents, even if your spouse or dependent is not eligible to have an HSA.Must be incurred after the HSA was established.Cannot be reimbursed from another plan or arrangement.But the medical expense must meet the following requirements: You can always take tax-free distributions for qualified medical expenses, even if you are no longer eligible to fund your HSA. What Are the Requirements of a Health Savings Account If an HSA distribution is used to pay for a “qualified medical expense,” you will never pay tax on those assets. HSAs were created to help individuals pay health insurance deductibles until the deductible is met and out-of-pocket expenses that are not covered by an HDHP. Using an HSA Qualified Medical Expenses and HSAs While many savers are using HSAs to save for medical expenses in retirement, you may also find it beneficial to use some of your tax-free HSA money to pay for medical expenses that arise before you retire.
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