The 2021 tax deadline has been moved from April 15 to May 17 by the IRS.
Health Savings Account (HSA) owners are usually keenly aware of the account’s triple tax advantage: pre-tax contributions, tax-free withdrawals for eligible expenses, and tax-free growth. What you may not know is that you can take advantage of tax-free contributions for the previous year all the way up to the tax filing deadline. Learn more below.
HSA Contributions and the Tax Deadline
The IRS offers HSA owners the ability to make contributions to their accounts all the way up to the tax deadline. This can be very beneficial for several reasons.
First, it allows you to lower your annual federal tax responsibilities. Since contributions are tax-free, adding more to your account can reduce your tax burden.
Second, this flexibility allows you to cushion your account for later use. HSAs have rollover for unused funds each year (use it or lose it does not apply). Plus, you can only spend what is available in your account balance.
Third, account contributions for the previous year do not count towards this year’s limits, even though you are technically making the contributions during this calendar year. If you have some additional money to make use of, you can max out your contributions for last year and then again for this year.
With a larger HSA balance, you have more healthcare dollars to spend tax-free. If you are looking at HSAs as a long-term solution, you have more to invest and grow your account. As a retirement account, HSAs offer additional financial security. After age 65, you can withdraw the money for any reason, healthcare or otherwise. Qualified healthcare expenses are still tax-free, but if you use the money for a non-qualified expense, you will only be taxed (no penalty applies).
HSA Annual Contribution Limits
In 2020, the annual contribution limits were $3,550 for those with individual HDHP coverage and $7,100 for those with family coverage. If you were age 55 or over last year, you can contribute an extra $1,000 over the annual limit.
How to Contribute for the Previous Year
HSAs also offer flexibility in making contributions. You can contribute by payroll reduction, check, or debit card. Be sure that you make it clear that your contribution is for the previous tax year. Click here to download our form.
You can only make HSA contributions AFTER you enrolled in a high deductible health plan (HDHP). If your HDHP coverage began January 1 of this year, you cannot contribute for the previous tax year (2020).
If you have any questions, please contact us for assistance.
DataPath Administrative Services offers employer-sponsored benefits management for HSAs, FSAs, COBRA, and more.