What Is an HSA Deduction?

An HSA deduction is a type of federal tax deduction available to some taxpayers who have a health savings account (HSA). Taxpayers may be entitled to deduct any contributions made to an HSA during a tax year, up to a specified maximum. If eligible, an HSA deduction can be taken as an above-the-line deduction, meaning that the taxpayer need not itemize deductions in order to claim this specific tax break.

A health savings account is a type of savings program that allows people to contribute funds to an account meant specifically for medical care. These accounts are meant to be largely tax-free, so that account holders can save the maximum amount of money for health care issues. Withdrawals from an HSA are often not subject to federal tax, so long as the money withdrawn is used for a qualifying medical condition. In general, in order to be eligible for the deduction, a person must not have another primary medical insurance, cannot use Medicare, and must possess the HSA as part of a high-deductible health plan. Additionally, a person cannot claim the deduction if he or she is claimed as a dependent for the tax year in question.

Not all contributions to a health savings account can be counted toward an HSA deduction. Employer contributions, for instance, are generally exempt from claiming. Personal contributions, or those from a third party who is not an employer, are the main source of HSA deduction levels. Even these types of contributions cannot always be claimed fully, since the HSA deduction is subject to a per-year maximum limit on eligible contributions.

Finding the maximum limit of an HSA deduction is an important part of financial planning for each year. Maximums may vary depending on the tax modifications for the year, as well as the household size of the taxpayer. HSA deduction limits are usually released at least a year in advance, and can be easily found on the website of the Internal Revenue Service (IRS). In terms of household size, a single taxpayer with no dependents will generally have a much lower deductible level than a person with dependents or a spouse. Determining how much of a deductible can be taken each year may help taxpayers figure out how much to contribute to their account during the year.

In order to claim an HSA deduction, a taxpayer must fill out a special tax form when filing his returns. This form is added to the regular tax return documents, and handles only information relating to HSA contributions and resulting deductions. The IRS also offers a how-to form that helps ensure accuracy by explaining each step of the HSA deduction paperwork. Since an HSA claim is made through a separate form, the taxpayer can still take a standard deduction instead of using an itemized tax form.