Health savings account (HSA) benefits are often provided by employers, but they can also be set up in other ways. The important thing to know about HSA funds, however, is that they are tax-free. What this means, however, may not be what you think.

When funds are contributed to your HSA, they are entered into and reside in your account without being taxed. If your employer contributes one dollar, you receive one dollar in your HSA. While that dollar sits in your HSA, it does not experience any tax liability, and contributions to your HSA are not included in your gross annual income, meaning they will not affect your tax bracket.

When Are HSA Funds Taxed?

HSA funds become taxed when they are used, particularly if they are used for purchases unrelated to medical expenses. Additionally, certain sales or local taxes may apply to items purchased with HSA funds. To add to this, utilizing funds in this way could come with a 20% penalty on top of taxation.

For People Over 65

If you’re over 65 and have an HSA, you may be able to get it by paying fewer taxes. An HSA for seniors allows people over the age of 65 to use funds from these accounts for almost anything without paying a penalty, but the funds are taxed on withdrawal in an HSA for seniors.

Because of the potential tax implications involved in HSA fund usage, contributions, and withdrawal, you’re encouraged to speak with a financial advisor regarding your unique situation. Failure to follow guidelines for HSA funds could potentially hit your wallet, and you may not find out that you are liable for fees and penalties until after a purchase or funds transfer has been made. If you need the best HSA for seniors, visit this website.

You can also speak with your human resources department if your HSA is supplied by your employer. This department should be able to offer guidance on everything from funds usage to tax implications of your HSA. If your account is supplied by an entity other than your employer, inquire with your account manager, or at the very least, discuss your situation with a tax advisor.

Read a similar article about current healthcare trends here at this page.