The Tax Savings of an Health Savings Account
When you contribute to your Health Savings Account (HSA) you’re saving on the taxes you pay and putting more money into your pocket.
Money you put into your HSA is not counted as part of your earnings, so when you pay your income tax you’re paying less than you would have if all your money was considered income.
Say your taxable income is $30,000, but you don’t enroll in an HSA so the amount of income you’re taxed on is $30,000. For this example, let’s say the tax rate is 30% and the amount you pay for taxes is $9,000. And, of course, throughout the year there have been a few medical expenses. Let’s say this time it’s $2,000. That leaves you with $19,000 in your pocket.
However, if you choose to contribute to an HSA that money comes out before your money is taxed, which means your income that is taxed is reduced and you’re left with more money in your pocket.
Let’s see how that works. Using the same $30,000 taxable income, if you deposit $2,000 into your HSA for medical expenses that amount is deducted from your income before it’s taxed so theamount of income you’re taxed on is actually only $28,000. The 30% income tax you now pay is now only $8400 instead of $9000 as in the earlier example – which puts $600 more in your pocket than before.
And since the money you put in your HSA is not taxed, qualified distributions are not taxed, and your HSA interest and investment earnings are not taxed, you have a triple tax savings.
As you can see, HSAs are the smarter way to pay for health care. Join the millions of Americans who already enjoy the tax savings offered by a health savings account.
To learn more about HSAs, check out our Frequently Asked Questions page.