7 minute read
Rising health care costs have contributed to the appeal of Health Savings Accounts (HSA) for individuals and employers.This plan allows individuals and employers to reduce the cost of monthly insurance premiums by enrolling in high deductible health plans and setting aside funds to cover expenses. These plans are particularly beneficial for healthy individuals who can afford to pay the deductible if the need arises. It is important to be mindful of the rules surrounding HSAs, but particularly the annual contribution limits.
Health Savings Accounts are savings accounts for health care expenses, much like retirement plans. They are often used to supplement traditional retirement plans.
These accounts are a great way to minimize taxes on health care costs since contributions are tax-deductible the year they are made, and withdrawals are tax-free when used for qualified medical expenses.
The IRS sets limits every year as to the maximum contribution made in the individual plan and the family plan.
The major eligibility requirement is that you participate in a qualifying high deductible health plan with deductibles of $1,400 or higher for individuals or $2,800 for families with a maximum out-of-pocket amount of $7,050 for individuals and $14,100 for families.
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The maximum contribution limit for 2022 for an individual is $3,650 per year and $7,300 for families.
You can set aside this pre-tax money in the current year and use it 20 years from now. It accumulates and does not have to be used annually since it never expires.
Individuals 55 or older by the end of the year can contribute an additional $1,000 to their HSA. These are known as catch-up contributions. This catch-up contribution was designed to allow individuals nearing retirement to catch up on savings through contributions made to an HSA.
Employer contributions do count towards the HSA maximum contribution limit for the year. If the employer contributes directly to the HSA, then the contributions are not taxable to the employee. If the contribution is made indirectly, then the contribution would be considered income and be taxed.
Looking to use a Health Savings Account to reduce your taxes? Corvee tax planning software can help you quickly optimize your HSA contributions to maximize tax savings. In addition, it considers over 1,600 other tax planning strategies you may qualify for. Learn more about how you can reduce your taxes with Corvee. Request a demo today.
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