Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
HSA and Medical Expense Deduction
Old 03-14-2018, 07:41 PM   #1
Recycles dryer sheets
gettingthere's Avatar
 
Join Date: Jul 2006
Location: Massachusetts
Posts: 163
HSA and Medical Expense Deduction

I'm looking for clarification on the rules for medical deductions vs. paying for medical expenses from HSA funds.

Say I have an AGI of $50,000 in 2017. I understand I can deduct medical expenses exceeding $5,000.

Say my medical expenses were $7,000 in 2017, I should be able to deduct $2,000.

Can I use HSA funds to reimburse myself for the first $5,000 of my $7,000?

My gut says no, but I have not been able to find anything via Google that explicitly says that.
__________________

gettingthere is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-14-2018, 07:56 PM   #2
Recycles dryer sheets
nvestysly's Avatar
 
Join Date: Feb 2007
Posts: 467
I suspect somebody with more expertise than me will reply but I'll tell you how I approach this when I file taxes via TurboTax...

We use an HSA so the annual contribution to the account is tax deferred. The contribution amount is accounted for on the first page of the 1040. This reduces our income so we are paying less taxes. Any medical expenses are paid via HSA funds and are therefore tax free.

So in our situation your gut is right. We don't further account for medical expenses when we itemize because all of our expenses have already been paid with tax free money. Otherwise, it seems you would be doing some sort of double-dipping and the IRS would not like that.
__________________

__________________
Dreamin' of Streamin'
FIRE'd at 52 on 7/8/11
nvestysly is offline   Reply With Quote
Old 03-14-2018, 08:23 PM   #3
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 2,581
1) The Medical Expense threshold for 2017 has been lowered from 10% to 7.5% (your example is based on the old threshold of 10%)

2) No double dipping - you can't apply HSA qualified distributions to expenses that you have claimed on Schedule A (in current or prior years). This includes the part that you need to overcome to get to 7.5%

I think this is called out in the IRS HSA form instructions and/or publication. Let me know if you need the actual reference.

-gauss
gauss is offline   Reply With Quote
Old 03-14-2018, 08:37 PM   #4
Recycles dryer sheets
gettingthere's Avatar
 
Join Date: Jul 2006
Location: Massachusetts
Posts: 163
Thank you both.
gettingthere is offline   Reply With Quote
Old 03-14-2018, 09:13 PM   #5
Full time employment: Posting here.
 
Join Date: Jun 2014
Posts: 845
I just went through this with Turbotax.

TurboTax had me fill out the HSA distribution first, then it asked about medical expenses (note you don't enter ACA premiums here), and then it says , so we see that you had an HSA distribution of X we assume you used 100% of it towards these qualified medical expenses... of which of course you say yes, and then they subtract X from your medical expense total.

Then if you had ACA, at the end you fill that part out about premiums because they have to re-calculate your ACA credit based on actuals so that they know how much you actually owe for insurance premiums since you have to settle up at tax time.

It then goes back in and puts the final insurance premium total into your medical expense to determine if you met the 7.5% threshold.
karen1972 is offline   Reply With Quote
Old 03-14-2018, 10:38 PM   #6
Recycles dryer sheets
gettingthere's Avatar
 
Join Date: Jul 2006
Location: Massachusetts
Posts: 163
Thanks, Karen. I should have tried it in Turbotax, but did not, because I did not put in for reimbursement of any expenses yet from HSA, but was wondering about using HSA for these expenses this year or in future years.

I will just have to add to my notes that I cannot reimburse any 2017 medical expenses.

2017 was the first year I had an HSA, and coincidentally the first year I ever had high enough medical expenses to deduct. I retired at the end of January 2017 last year and had much lower income than previously, 11 months of COBRA medical and dental to count toward the 7.5%, plus a pricey scan that insurance would not cover, plus dental work.

I maxed out my HSA contribution for 2017 and the 6 months worth I am able to contribute this year (I turn 65 in July) and am trying to decide if maintaining the HSA account is worth the hassle, since the balance is not large, or if I should just start using the funds.
gettingthere is offline   Reply With Quote
Old 03-14-2018, 11:05 PM   #7
Thinks s/he gets paid by the post
RobbieB's Avatar
 
Join Date: Mar 2016
Location: Central CA
Posts: 4,509
I've always used the funds as they were intended; to pay medical expenses.

Rx drugs, co-pays at check in, lab fees billed, Rx glasses and the dentist.
__________________
Retired at 59 in 2014. Should have done it sooner but I worried too much.
RobbieB is offline   Reply With Quote
Old 03-15-2018, 06:44 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 8,576
We had a recent thread where I unsuccessfully argued that only the part above 7.5% or 10% or whatever the threshold on schedule A could not be used for HSA withdrawals. Others convinced me that the full amount you put on schedule A, including the part that got you to the threshold, was ineligible. I don't remember what the source was. A search of the last 6 months might find it.

HSAs are kind of funny. A lot of places either have low rates on fixed investments, or charge high expense rates. If you don't have much money in one, I'd say it probably isn't worth keeping open if you have expenses to take.

I had a few healthy years when I first opened an HSA so I couldn't withdraw it all (penalty and tax free) if I wanted to. I was getting 1.5% fixed with no fees at my CU, which isn't terrible. My account got large enough that I just moved my account to SelectAccount, where I can invest more aggressively with small fees--I think $30/year. If you only have $3000 there, that's 1% (too high for my tastes), but if you have $30K, that's 0.1% (much better).

I like keeping the HSA as an emergency fund of sorts. I can take what I'm allowed in past medical expenses with no taxable income. I like to have that option in my pocket rather than withdraw it in a year where I have room to take income.
RunningBum is offline   Reply With Quote
Old 03-15-2018, 06:49 AM   #9
Administrator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: lumpen slums of cyberspace
Posts: 30,202
This is the thread RB is referring to, and post 3 by gauss has the appropriate reference to the tax code on this topic. Distributions from an HSA
MichaelB is online now   Reply With Quote
Old 03-15-2018, 07:48 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Posts: 2,347
Quote:
Originally Posted by RunningBum View Post
HSAs are kind of funny. A lot of places either have low rates on fixed investments, or charge high expense rates. If you don't have much money in one, I'd say it probably isn't worth keeping open if you have expenses to take.
+1
If you have a very limiting HSA it is likely better to redeem the expenses. I have not redeemed any of my HSA, but have kept the receipts as I can redeem later if I want. But I have an HSA where I can invest the assets. I'm using this as a vehicle to create a tax free fund for paying for health care in later years. After 65 the rules change and the HSA can do more.
__________________

bingybear is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Investment Interest Expense deduction going forward DanP FIRE and Money 10 11-08-2017 04:20 PM
Medical Deduction vs. HSA Neill FIRE and Money 1 12-15-2016 01:22 PM
Mortgage Interest Deduction vs Standard Tax Deduction Question denefi FIRE and Money 16 11-14-2013 08:34 PM
Standard Deduction Equals Itemized Deduction? scrabbler1 Other topics 6 02-22-2012 09:09 AM
Medical deduction Shredder FIRE and Money 2 01-18-2007 04:34 PM

» Quick Links

 
All times are GMT -6. The time now is 03:42 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
×