Health Care Savings Account Deduction

[Brett_Cameron]

I have an HSA for family coverage. I contributed to my HSA while employed via the employer deducting the HSA contribution from my pay and depositing it directly in my HSA. After I retired, I continued HSA contributions by direct transfer from my checking account to the HSA. When I retired, the HSA trustee closed my working era account and opened another account with the balance transferred from the old one to the new one.

Because I am over 55, I contributed $7,150 to the HSA for 2011. I was expecting to be able to deduct $7150 from my gross income on form 1040 as an adjustment to income.

Much to my surprise, only the amounts the employer deposited in the HSA are allowed to be deducted as an adjustment to income per form 8889.

I am using Turbo Tax which showed this result. Studying the form 8889 and instructions, I have confirmed this, I think.


Has anyone else run into this situation? For me it is a Shazaam moment.

 

[ziggy29]

I have an HSA for family coverage. I contributed to my HSA while employed via the employer deducting the HSA contribution from my pay and depositing it directly in my HSA. After I retired, I continued HSA contributions by direct transfer from my checking account to the HSA. When I retired, the HSA trustee closed my working era account and opened another account with the balance transferred from the old one to the new one.

Because I am over 55, I contributed $7,150 to the HSA for 2011. I was expecting to be able to deduct $7150 from my gross income on form 1040 as an adjustment to income.

Much to my surprise, only the amounts the employer deposited in the HSA are allowed to be deducted as an adjustment to income per form 8889.

I am using Turbo Tax which showed this result. Studying the form 8889 and instructions, I have confirmed this, I think.

Has anyone else run into this situation? For me it is a Shazaam moment.

If you made HSA contributions through employer withholding, you probably can't deduct the amount because that amount was never included in your W-2 taxable income to begin with.

If Box 12 on your W-2 has the amount you contributed with the code 'W', that would explain it -- the deposits you made to the HSA through payroll deductions never hit your reported taxable income to begin with, so you can't "double dip" on the deduction and claim it again separately.

 

[Brett_Cameron]

The part my employer deposited on my behalf and reported on my W2 in box 12W is deductible. The other $3800 I deposited myself is not deductible.

 

[kaneohe]

Much to my surprise, only the amounts the employer deposited in the HSA are allowed to be deducted as an adjustment to income per form 8889.

are you sure you don't have this backwards?
Tax Filing for HSA Accounts

This article agrees w/ what ziggy said. The form appears to subtract the employer contributed amount from the allowed contribution. Then it compares the difference vs the amount you contributed post-tax and allows a deduction for the smaller of the 2 numbers.

I never had an employer deduct from my paycheck and always contributed on my own. I deducted my contributions as an adjustment on the 1040.

 

[Mulligan]

The part my employer deposited on my behalf and reported on my W2 in box 12W is deductible. The other $3800 I deposited myself is not deductible.

I did mine on turbo tax 2 days ago. When it got to the HSA question, there are options on where to place your contribution money source. I dont remember the particulars but it asked a question that I answered then went on. I noticed that my refund amount didnt move higher, so I went back in and put it on a different option under the HSA and then it recorded it correctly. Are you sure you entered it correctly? I do remember that turbo asks whether its employer or self contribution. Maybe you did what I did and either entered it wrong, or answered a question wrong that caused it to not recognize as a direct contribution.

 

[Brett_Cameron]

Thanks for the feedback. I will check it again tomorrow with a fresh brain. I hope I am mistaken about this.

 

[Brett_Cameron]

Ziggy,
I think I understand what you said, I think that is the situation. Thanks!

 

[Brett_Cameron]

Update: After a good night's sleep, I relooked at the form and all of the excellent, very polite, feedback and now I see where I was wrong. I am glad I was wrong.

As Ziggy said, the contributions made on my behalf by my former employer were not included the W2 block 1 for wages. My interpretation f the results of Turbo Tax was incorrect. All is well with the world!


Thank you all for being so gentle with me!

 

[ziggy29]

One of the oddities and confusing things about it is that even when it is *your* money you are depositng through payroll deductions, it is entered as an "employer contribution" in most cases. You would only enter what you deposited outside of payroll withholding if you made separate, additional contributions. So in 2010, I had roughly this situations:

Employer contributions: $1,000
Employee contributions through payroll deductions: $5,000
Employee contributions outside of payroll deductions: $150

In this case, Box 12 of the W-2 showed $6,000 and code W. This was income that never hit my W-2 taxable earnings. In Turbo Tax I entered $6,000 as the employer contributions and $150 as my own contributions, the latter of which was deductible because that $150 was deposited with after-tax money. They could probably be a little more clear about the fact that "employer contributions" includes your own contributions that were made through your employer's payroll deduction system.

(As an aside for those who don't know, another advantage of funding an HSA through payroll deductions when possible is that when they are part of a qualified Section 125 cafeteria benefits plan, HSA contributions through payroll deduction are exempt from SS and Medicare taxes. Even 401K contributions don't have that exemption.)

 

[meierlde]

Actually if your employer has it set up right, one can pay the employee share of premiums on health and dental insurance as well with the same exemptions.

 

[ProGolferWannabe]

One of the oddities and confusing things about it is that even when it is *your* money you are depositng through payroll deductions, it is entered as an "employer contribution" in most cases. You would only enter what you deposited outside of payroll withholding if you made separate, additional contributions. So in 2010, I had roughly this situations:

Employer contributions: $1,000
Employee contributions through payroll deductions: $5,000
Employee contributions outside of payroll deductions: $150

In this case, Box 12 of the W-2 showed $6,000 and code W. This was income that never hit my W-2 taxable earnings. In Turbo Tax I entered $6,000 as the employer contributions and $150 as my own contributions, the latter of which was deductible because that $150 was deposited with after-tax money. They could probably be a little more clear about the fact that "employer contributions" includes your own contributions that were made through your employer's payroll deduction system.

(As an aside for those who don't know, another advantage of funding an HSA through payroll deductions when possible is that when they are part of a qualified Section 125 cafeteria benefits plan, HSA contributions through payroll deduction are exempt from SS and Medicare taxes. Even 401K contributions don't have that exemption.)

I agree that they should better distinguish between employer contributions and employee payroll deductions. I get confused by that every year when I go to enter my HSA info into Turbo Tax.

 

[kaneohe]

The part my employer deposited on my behalf and reported on my W2 in box 12W is deductible. The other $3800 I deposited myself is not deductible.

so did this 3800 end up on line 25 of the 1040?
http://www.irs.gov/pub/irs-pdf/f1040.pdf

 

[Brett_Cameron]

so did this 3800 end up on line 25 of the 1040?
http://www.irs.gov/pub/irs-pdf/f1040.pdf

Yes, indeed, it did.

 

[frank]

what is the maximum that can be added to hsa accounts and be used as a deduction for married filing jointly?

 

[pb4uski]

I believe it is 6,150 if under 55 plus an additional 1,000 for each taxpayer over 55. So for an over 55 couple the max contribution would be 8,150. That is what my HSA provider recently told me.

 

[hpnutty]

2012 rules - HSA holders can choose to save up to $3,100 for an individual and $6,250 for a family (HSA holders 55 and older get to save an extra $1,000 which means $4,100 for an individual and $7,250 for a family) - and these contributions are 100% tax deductible from gross income.

The limit is $7,250 for a family with the holder 55 or older in 2012.

 

[movaly1]

Does the employer contribution (e.g. 100/month for a family deposited into the HSA by the employer) count toward the total family contribution ($6250/year)?

 

[Mike1968]

Does the employer contribution (e.g. 100/month for a family deposited into the HSA by the employer) count toward the total family contribution ($6250/year)?

Yes.

I am single and the max is $3,100 for 2012. I will contribute $2600 and my employer is contributing $500 to make a total of $3,100.

The amounts are combined on the HSA unlike the 401k's

 

[Brett_Cameron]

Does the employer contribution (e.g. 100/month for a family deposited into the HSA by the employer) count toward the total family contribution ($6250/year)?

Yes, I believe it does.

 

[tmm99]

I don't mean to hijack this thread, but I havea HSA related question. I elected HSA this year for the first time. Around $100 goes into my HSA account every pay period. If I go to a DR now and the bill is more than what I have in my HSA account, do I have to pay the difference out of pocket (which is after-tax money, unlike the money in the HSA)?

 

[MichaelB]

I don't mean to hijack this thread, but I havea HSA related question. I elected HSA this year for the first time. Around $100 goes into my HSA account every pay period. If I go to a DR now and the bill is more than what I have in my HSA account, do I have to pay the difference out of pocket (which is after-tax money, unlike the money in the HSA)?

You do not have to use the funds in the HSA account. You can leave them in the account and pay from regular savings, itemizing the deduction for tax purposes. If you do use funds from the HSA account that expense cannot be deducted from your income for tax calculation.

 

[kaneohe]

I don't mean to hijack this thread, but I havea HSA related question. I elected HSA this year for the first time. Around $100 goes into my HSA account every pay period. If I go to a DR now and the bill is more than what I have in my HSA account, do I have to pay the difference out of pocket (which is after-tax money, unlike the money in the HSA)?

You can do as MichaelB suggested. Alternatively, if , for some reason, you prefer to use the pretax funds, you can pay the difference out of pocket,
and reimburse yourself later from the HSA. That assumes the custodian is not being a nanny and only approving payments to doctors, etc. You will need to file a tax form eventually showing that the withdrawals match the medical expenses.

 

[tmm99]

Thank you Kaneohe and Michael. I got it now.

 

[pb4uski]

2012 rules - HSA holders can choose to save up to $3,100 for an individual and $6,250 for a family (HSA holders 55 and older get to save an extra $1,000 which means $4,100 for an individual and $7,250 for a family) - and these contributions are 100% tax deductible from gross income.

The limit is $7,250 for a family with the holder 55 or older in 2012.

My understanding is it would be $7,250 for family coverage where one person is over 55, but would be $8,250 for family coverage where both people are over 55. That is the way HealthEquity explained it to me this morning.

IOW, for family coverage the limit is $6,250 + $1,000 or each person over 55.

However, since the max contribution to a single HSA account for a year is $7,250, the $8,250 would need to be allocated between two accounts. For example, DW and I have family coverage and will contribute $1,000 to her account and $7,250 to my account, but we could split the $8,250 differently if we want to.

see http://www.irs.gov/pub/irs-pdf/p969.pdf page 6 under rules for married people.