HSA & Deducting Medical Expenses.

I was hoping someone could shed some light on a tax question I have:

I have an HSA with a HDHP, and my employer contributed $1500 to this HSA this year. My family deductible was $7000, which we hit this year with the birth of our first child. I have a few questions

1.) My deductible is > 7.5%, so I can itemize this cost, correct? 2.) I'm assuming I can just withdraw the $1500 from my HSA and put it into my pocket, since it is easy to prove I incurred that costs during the year? 3.) Are you allowed to write off both contributions to an HSA, as well as your medical expenses? For example, next year, if I plan on hitting the 7K again, would it be beneficial to contribute $5500 to my HSA (which would total $7K with my employers contribution). Then at the end of the year, itemize my expenses, effectively deducting both the 7K in expenses as well as the $5500? Is this "double dipping"?

Any info would be awesome.

Reply to
beckkl
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Perhaps. See below.

You are permitted to take the HSA money any way you choose.

If you have an HSA credit card and are in the casino at Mandalay Bay, feel free to take out as much cash on that card as you choose. You have not broken any laws.

The amount taken from an HSA account will be reported to you on Form 1099-SA and will be taxable to you unless you declare some or all of that money to have been spent on allowed HSA medical expenses.

Note that i) any moneys taken from an HSA account and declared as spent for allowable medical expenses caannot be claimed on Schedule A Line 1, and, ii) your HSA allows certain expenses, such a OTC meds, which are not allowable on Schedule A Line 1.

The amount you contribute (but not the amount your employer contributes, which is before tax so not taxable to you anyway) is deductible. The amount distributed from the HSA and which you declare you spent on HSA allowable medical expenses, is not taxable.

In my counting, it is dipping only once.

We were in a nice rstaurant this weekend, and the server asked what I wanted to drink, and I said just the water. She said, "awesome." My undertanding of awesome is certainly not awesome.

Reply to
Arthur Kamlet

More specifically, can I do this:

Assume all qualified medical expenses are valid for both HSA and Schedule A Line1.

Contribute $5000 to HSA throughout the year, pretax. During the year, spend $5000 on qualified medical expenses (Not via the HSA card) At the end of the year withdraw all $5000 from HSA account, since I had $5000 in qualifying expenses Enter $5000 on Schedule A Line 1.

That doesn't seem right to me, as the $5000 is not taxed, yet I'm deducting it at the end of the year.

Reply to
beckkl

If you are not going to declare the 5000 withdrawn from the HSA to have been spent on allowable HSA medical expenses, then you will pay tax on that 5000 and also you can itemize the 5000 on schedule A.

You cannot declare the 5000 to be HSA allowable distruibution and also itemize iton schedule A.

There are several steps.

One is to contribute out of pocket the 5000 to an HSA and deduct it.

You will do that. You do not deduct any employer contribution since the employer has taken care of any tax aspects there.

Then you withdraw 5000 from the HSA. When you file your tax return you get to declare how much of that 5000 was for allowable HSA medical expenses and that declared amount is not taxable income and is not allowed to be deducted on Schedule A for the same expenses.

Look closely at Publication

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also Form 8889. That should help clear things up.

Reply to
Arthur Kamlet

So is there any tax benefit to contributing to the HSA if my medical expenses are going to be greater than 7.5% anyway? It seems easier just to deduct these expenses via Schedule A Line 1. I can then use the employer HSA contribution to cover the expenses I can't deduct via Schedule A. These costs are minimal.

Reply to
beckkl

,

You cannot deduct any amount that is reimbursed to you from your HSA during the year.

If you reimburse yourself from an HSA for an expense that you deducted (for a tax benefit - i.e. it reduced your taxes), AND that expense was deducted in an "open year", you must amend the return for that open year to remove the expense to the amount reimbursed.

You may not reimburse yourself for an amount deducted in an earlier year if it is now a "closed year."

Not a problem, as your medical expenses exceeded the amount withdrawn. The withdrawl will be tax free.

Note that any amount contributed by your employer REDUCES the amount you may contribute. With a $6,150 cap (Rev. Proc. 2009-29), your employer's contribution of $1,500 means that you cannot contribute more than $4,650. If you were to put in $5,500, then you would be making an excess contribution of $850 and subject to a 6% excise tax ($51), plus any tax or penalty under state income tax laws, if applicable.

Not without penalty. For 2009, the limit is $5,950, of which your employer has already contributed $1,500. That leaves $4,450.

Fine.

Yes.

NO! Expenses paid or reimbursed from the HSA are not deductible. You got your deduction when you put the money in.

That's because it is wrong.

Reply to
D. Stussy

Probably. If you put the expenses on Schedule A, you can only deduct the amount that exceeds 7.5% of your AGI. If you contribute to the HSA and then reimburse yourself, you can deduct all of it.

Also remember that unlike an FSA, money in an HSA is yours to keep, approximately an IRA with a faucet on the side through which you can take out money at any time to pay for medical expenses. An alternative, if you can afford it, is to put money into the HSA and leave it there, so if a family member is hit by the proverbial bus, you'll have money available when you need it, or if your family stays healthy, it's available for your retirement.

R's, John

Reply to
John Levine

I think some clarification is in order in regard to terminology. The tax benefit of your contributions to the HSA is a so-called "above the line" deduction--this comes under "adjusted gross income" on Form

1040, Line 25 (so far) for 2009--you get to subtract these contributions (within defined limits) from your taxable income. You do not put your out-of-pocket medical expenses on Schedule A (to the extent they equal distributions from the HSA), because you never paid tax on the money you or your employer put in. Hope this helps.
Reply to
Brew1

Doesn't the contribution to an HSA come "over the line", that is, it doesn't count towards AGI? In that case, you're always better off maximizing the HSA, no matter how large your medical expenses are. (If not, it doesn't matter for large expenses, since the excess over

7.5% is deductible whether or not it goes through an HSA. But if expenses after HSA are under 7.5%, the HSA maximizes your deduction.)

Seth

Reply to
Seth

If you contribute to the HSA and DON'T reimburse yourself, you can still deduct all of what you contributed to the HSA.

Right, and you get a deduction each year for money put into the HSA.

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