Are HSA Contributions Deductible under Tax Law? All You Need to Know

Health Savings Accounts (HSAs) are a great way to save for medical expenses while enjoying tax benefits. One common question that arises is whether HSA contributions are deductible under tax law. Let's break it down:

Under the current tax laws:

• HSA contributions made by an individual are typically tax-deductible, meaning you can lower your taxable income by the amount you contribute to your HSA.
• If your employer contributes to your HSA on your behalf, those contributions are excluded from your gross income, which means they are not subject to federal income tax, Social Security tax, or Medicare tax.
• Contributions made by anyone other than yourself or your employer are not tax-deductible.

It's important to note that there are limits to how much you can contribute to your HSA each year. For 2021, the contribution limit for individuals is $3,600 and $7,200 for families.

Now, let's outline some key points:

• HSA contributions made by an individual are typically tax-deductible.
• Employer contributions to your HSA are excluded from your gross income.
• Contributions from third parties are not tax-deductible.
• Contribution limits for 2021 are $3,600 for individuals and $7,200 for families.

Health Savings Accounts (HSAs) not only provide an avenue for saving on medical expenses, but they also offer some significant tax advantages that many people may not be aware of. Understanding whether your HSA contributions are tax deductible can help you maximize these benefits. So, what do the current tax laws say?

In essence:

• Individual contributions to your HSA can be deducted from your taxable income, effectively reducing the amount of taxes you owe.
• Employer contributions made directly into your HSA are also exempt from federal income tax, Social Security tax, and Medicare tax—leading to even greater savings.
• However, if a third party contributes to your HSA, those contributions won't be tax-deductible.

It's crucial to remember the annual contribution limits: as of 2021, you can contribute up to $3,600 if you're an individual, and $7,200 for family coverage.

To summarize:

• Your personal HSA contributions are generally tax-deductible.
• Employer contributions are tax-free for you.
• Third-party contributions do not qualify for tax deductions.
• Annual limits for 2021 are set at $3,600 for individuals and $7,200 for families.