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Paying COBRA with HSA
Old 01-12-2021, 07:23 PM   #1
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Paying COBRA with HSA

An interesting tidbit I just ran across that I was unaware of so I thought I'd post:

"You can pay your insurance premiums using pre-tax dollars in a health savings account (HSA) if you enroll in COBRA or are receiving unemployment insurance."

Of course the COBRA plan must be a high deductible plan. This was actually posted here back in 2006, but not since then, at least not that I found so thought it wouldn't hurt to re-post for anyone (like me) deciding between COBRA or ACA.

Without the above caveat I believe health insurance is only deductible if you itemize and, and only on the portion of the cost above 10% of your AGI. At least that's what I got from this article, but please verify this part yourself, I'm still coming up to speed on most of this stuff:
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Old 01-12-2021, 07:45 PM   #2
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I don't think the COBRA plan needs to be a high deductible plan to be paid from a HSA.... so if you have an existing HSA from previous years, leave/retire and go on COBRA, you can use HSA money to pay those COBRA premiums whether the COBRA coverage is high deductible or not.

I guess if you had a COBRA policy that was HSA qualified you could make deductible contributions to the HSA and then use the HSA to pay for the COBRA premiums (or later reimburse yourself for any COBRA premiums paid). In that case the HSA contributions would be a HSA deduction and not an itemized deduction.

You can't use include any insurance premiums paid from a HSA in itemized deductions.
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Old 01-13-2021, 12:25 AM   #3
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+1 to pb4uski's comments above.

The limit is 7.5% of AGI now. And you can include all sorts of OOP medical expenses in addition to premiums to try to reach that number. Just not anything for which you've also obtained a tax benefit (so you can't include a medical expense on Schedule A for which you also reimbursed yourself from your HSA).

Most people, though, will still be better off with the standard deduction, because even if you make it above 7.5% of AGI on medical expenses, that amount (plus your RE taxes, charitable donations, etc.) still has to exceed the higher standard deduction. Which is hard to do for about 80% to 90% of taxpayers.

FYI there is a deduction (an adjustment, actually) for health insurance if you are self-employed. See line 16 of Schedule 1 and the related IRS instructions. Note that if you are self employed and on an ACA plan and receiving a PTC, and want to claim the SE HI deduction, the tax law has a circular calculation that is a pain to figure out.
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Old 01-13-2021, 06:25 AM   #4
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While we are on the subject of health insurance premiums, donít forget the $3000 adjustment to 1099R taxable income for retired Public Safety Officers who have the premiums deducted from their gross payment.

All of these adjustments / deductions can stack, but no double dipping. For example, a retired police officer paying $1735/yr for Medicare, paying $4000 for a supplemental policy (taken out of her pension), who is self employed could do this:

1. Subtract $3000 from taxable portion of 1099R pension for PSO

2. Apply the remaining $2735 ($1000+$1735 from Medicare) to the SE Health insurance adjustment

3. If there is not enough self-employed profit to allow the full $2735 adjustment, the remaining amount can be claimed as a medical expense if not using the standard deduction

Any amount paid for health insurance for a spouse and dependents can also be used in #2 and #3
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