HSA and taxes

[JohnEyles]

I hope this is appropriate to THIS board - seems like people discuss
pretty general financial questions here ...

Being ER'ed, I have an individual high-deductible health insurance
policy, with an HSA account. (I do contract occasionally, through an
agency for whom I'm a W2 employee, but I'm part-time so ineligible
for their health insurance).

I understamd that the HSA premium ($2K/yr) is deductible, above the
line. But the policy premiums are not deductible, except on Schedule A
(subject to 7.5% AGI exclusion), no ? They can't be a self-employed
health insurance deduction, because I have no Schedule C income ?

Since my income is quite low, the insurance premiums pretty much get
me to 7.5% AGI. So my question is, does it make sense to pay medical
expenses with ordinary after-tax money (savings acc't, whatever) rather
than the HSA account ? They'll be deductible, since the insurance
premiums got past the 7.5% AGI, and meanwhile the HSA gets bigger.

Does this make sense, and is it legal ?

Thanks, John

 

[TromboneAl]

I the HSA premium ($2K/yr) is deductible,

Did you mean to say that the HSA contibutions are deductible?

It definitely makes sense to use your HSA as a retirement account, spending after-tax money on medical expenses so it can grow.  That's what I'm doing.

My guess is that it's legal, too, even if your medical expenses are above 7.5% and deductible.

Correct that the policy premiums are not deductible except as you noted.

 

[eridanus]

Being ER'ed, I have an individual high-deductible health insurance
policy, with an HSA account. (I do contract occasionally, through an
agency for whom I'm a W2 employee, but I'm part-time so ineligible
for their health insurance).

What T-Al said but can you go to 1099 status? You'd get the self-employed premium deduction and could start a solo 401k or a SEP IRA as well.

 

[TromboneAl]

Here's the relevant HSA publication: LINK.

While self-employed, I always deducted all medical expenses and premiums.

After retiring, I still file a Schedule-C for my meager jazz income (or loss). This is generally between -1,000 and +1,000 per year.

I wonder if I could use that as a basis for deducting medical expenses/insurance premiums? Thoughts?

 

[JohnEyles]

Sorry, yes I meant that the HSA *contribution* is deductible.

Ok, glad it seems sensible not to pay costs that are above the 7.5%
exclusion from the HSA, and let it grow 'til I really need it. Only funny
thing I'll do is to get my dentist to credit my HSA MasterCard, and then
I'll repay him from bank account funds. I guess that's kosher.

As far as going 1099 (so that I can deduct the premiums on the
hi-deductible policy as self-employed health insurance above-the-line),
that would be quite a battle. But it's quite a story in itself (see below).

Thanks tons, John

P.S. My former employer (who shall remain nameless, but is famous to investors
WAY out of proportion to their size, due to stock volatility and legal drama) was
INSISTENT that I go through an agency. Apparently they had contractors
who failed to pay estimated taxes and had big bills at filing time, and the IRS
came after the company - bizarre, isn't it totally the contractors' fault ?
And also, they're paranoid about being accused of firing me and hiring me
back as a contractor, to save benefits. I guess unscrupulous companies
WILL do that, but there's no benefit to them with me, because I charge
a much higher hourly rate than my annual salary divided by 2000hrs.

And I'm just as happy, because I have NO self-employment tax, since as a
W2 employee of the agency, THEY pay the employer end of FICA/Medicare
(which of course they pass on to my employer as a premium on my hourly
rate !).

 

[JohnEyles]

Here's the relevant HSA publication:  LINK.

While self-employed, I always deducted all medical expenses and premiums.

After retiring, I still file a Schedule-C for my meager jazz income (or loss).  This is generally between -1,000 and +1,000 per year.

I wonder if I could use that as a basis for deducting medical expenses/insurance premiums?  Thoughts?

Aren't you STILL self-employed ?  It seems to me like you can deduct your premiums
as self-employed health insurance, at least up to your Schedule C income, and then
deduct whatever premium is left over, plus your expenses, on Schedule A.  If you're
retired, I assume 7.5% of your AGI ain't that much ?


John

 

[TromboneAl]

Yes, that's right. Since we don't have a mortgage, we usually take the 10K standard deduction; I'll have to see whether we could get more if we itemize.