Wednesday, October 20, 2010

Health Savings Account Deduction

Earlier in the week the RDTC Tax Help Blog posted the newest entry in its deduction of the week series. The new article explains the deduction available for health saving accounts (HSAs). Contributions to these plans are usually tax-deductible, and withdrawals are not taxable if the money is used for a qualifying medical expense.

Above the Line

The HSA deduction is an above the line deduction, meaning that you can itemize even if you claim the standard deduction.

Deduction Limits

The deduction you can claim for your HSA contributions are limited to a maximum dollar amount. In 2010, the limit is $3,050 for individual coverage, $6,150 for family coverage, and $1,000 for catch-up contributions.

IRS Qualifications

According to IRS Publication 969, to be eligible for the HSA deduction you must meet the following requirements:

  • You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month.
  • You have no other health coverage except what is permitted under Other health coverage.
  • You are not enrolled in Medicare.
  • You cannot be claimed as a dependent on someone else's 2009 tax return.
  • Claiming the Deduction
You will need to report your deductible HSA contributions on IRS Form 8889 and your Form 1040 when you prepare your return. You do not need to complete a Schedule A, just subtract them on the front page of your Form 1040 when you calculate your adjusted gross income.

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