Songwriters tend to enjoy lamenting over the fact that it’s too late. From One Republic to the Cornelius Brothers to Carole King, it’s apparently too late to apologize, too late to turn back now, or just generally too late, baby. But one topic these musicians can’t lament over is making additional contributions to their health savings accounts for the calendar year 2019.
If you have an HSA, you can contribute funds for 2019 right up until the April 15th deadline for filing your federal income taxes. Putting a little extra cash into your account over the next couple of months will not only boost your balance, but also reduce your tax bill.
Tax savings for dummies
Ah, taxes. There are so many confusing new rules and regulations every year that are nearly impossible to decipher, even if you’re a genius. And we mean that literally. As Albert Einstein once said, “The hardest thing to understand in the world is income tax.”
We’ll dumb it down for you. HSAs are triple tax-advantaged, which means you can make tax-free contributions, earn tax-free interest, and pay for qualified medical expenses like copayments, prescriptions, and dental and vision care—you guessed it—tax-free.
Just as with a 401(k) or other traditional retirement account, contributing pre-tax dollars to an HSA reduces your taxable income for the year. And unlike those accounts, there are no required minimum distributions, even after you reach retirement age. The money in your HSA can sit tight for as long as you want, increasing over time.
How much is too much?
2020 brought some good news for health savings account owners. The contribution limit rose by $50 for individual coverage and $100 for family coverage, bringing the totals to $3,550 and $7,100, respectively. For those over age 55, the catch-up contribution limit remains at $1,000.
Keep in mind that if your employer contributes to your HSA, the total contributions from you and your employer can’t exceed the annual limits. If they do, you won’t be able to deduct the excess amount. Worse yet, you could face a penalty of 6% on the excess contributions unless you withdraw the money by April 15th.
A few other reminders:
- States without a state income tax don’t provide a deduction for HSA contributions. Sorry, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.
- Keep an eye out for IRS Form 1099-SA, which details your total HSA distributions, as well as Form 5498-SA if you made any individual HSA contributions. You will need to file IRS Form 8889 with your tax return to report the distributions you’ve taken.
- Finally, make sure you keep track of your expenses throughout the year. The IRS may ask for future proof of distributions, so keep those receipts! Careful record-keeping can help you avoid an unexpected tax bill.