Health savings accounts are designed to help people with high-deductible health insurance plans pay for their medical expenses with pre-tax dollars. To make contributions to the plan, you have to be covered by only a high-deductible plan. Unlike medical savings accounts, the money can stay in the account for as long as you need the money, and it grows tax-free. As long as you use the distributions for qualified medical expenses, the contributions and earnings are tax-free. You can have an HSA that you start on your own or through your employer.
Contact your benefits coordinator at your company to find out if your employer offers HSAs to employees. If not, you can still start an HSA on your own, assuming you qualify, but you will have to contribute and then claim a deduction on your tax return.
Sign up to have a portion of each paycheck withheld to contribute to an HSA. Some employers will allow you to make contributions with payroll deductions throughout the year, while other employers will make the contributions on your behalf through a cafeteria plan. In a cafeteria plan, your employer gives you the option to receive cash, which counts as taxable income, or a specified pre-tax benefit, such as contributions to an HSA. If you make the HSA contribution with pre-tax dollars, you do not take a deduction on your income tax return.
Claim a deduction on either Form 1040, line 25, and attach Form 8889 to document the contribution. You can claim this deduction even if you don't itemize your deductions.
Items you will need
- Form 8889
- Form 1040
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