Question Re: HSA/Taxes

MommyLiberty5013 · June 2015

DH has an HSA through work. Some of you will recall my health issues (I had surgery in mid-May). We're getting the bills now. I am SOOOO thankful for health insurance. But, the bills from this procedure and previous doctor visits for me this spring will drain our HSA balance to $0.

DH has HSA contributions coming out each paycheck, which is 2x per month. But, the time it takes to rebuild the HSA up to a higher amount enough to pay one of the remaining bills due will be a long time - like 6+ months. I am fairly sure the hospital won't want to wait that long for their money.

So, if I pay the bill due with our credit card (to earn points) and then pay off the balance due in full (duh.), then can we deduct this specific health bill on our 2015 taxes since it wasn't run through the HSA using pre-tax dollars?

I assume I can. But, I just wondered what ya'll think.

CuriousKiddosMama · June 2015

You can't deduct medical expenses unless they are a significant part of your income. Think like 10%+.
Not an expert, but that is what I remember. Hopefully somebody else has experience and can tell you.

vlagrl29 · June 2015

you can deduct them if you have an HSA account. We've been doing it for 3 years now.

hoffse · June 2015

Without looking it up, the 10% floor sounds correct to me. I know it's absurdly high and is one of those things that really should be changed. I mean, I can deduct business expenses over 2% of my AGI, but I can't deduct medical until I hit 10% - or whatever the floor is? That's obviously a result of poor lobbying.

Anyway, most people don't hit this floor unless they have very high medical bills coupled with kind of crappy insurance or a really low AGI.

vlagrl29 · June 2015

To answer your question I'm pretty sure that the only way to deduct it is to have it run thru your HSA account. Can you make minimum payments with your HSA card until it's at 0. Our hospital doesn't have interest with medical loans.

Do you have a tax professional you can ask. We are self employed so our HSA is run a bit differently. We pay for all of our medical expenses thru our joint checking and in December every year I add up all the receipt and put that total from our checking into the HSA and then turn around and pay ourselves back so we can get the tax deduction.

hoffse · June 2015

Yeah, it's 10% - and you have to itemize:

http://www.irs.gov/Individuals/2013-Changes-to-Itemized-Deduction-for-Medical-Expenses

AprilZ81 · June 2015

I think you can also submit the bill to the HSA for reimbursement if you have to pay it out of pocket first. I'm not 100% on that though.

short+sassy · June 2015

I'm pretty sure @CuriousKiddosMama is right. It takes pretty significant out-of-pocket medical bills to be able to deduct them. Which I think is total B.S., but whatever.

And don't even get me started that I have to pay sales tax on prescription medication. Prescription medication!!!! (I know, I know, nothing to do with federal taxes).

However, why don't you just pay the bills now and then take the money out of the HSA as it gets paid in to "pay yourself back", so to speak? At least that is how my HSA works. I can request a check if I pay medical bills out of pocket and didn't use the HSA. Heck, I even have a Visa debit card for my HSA. I can withdraw money right out of an ATM. They don't even require documentation of what medical bills were paid...though, of course, the IRS sure would if you were ever audited.

hoffse · June 2015

AprilZ81 said:

I think you can also submit the bill to the HSA for reimbursement if you have to pay it out of pocket first. I'm not 100% on that though.

Yes, this is true.

You can actually save medical bills throughout your lifetime and invest the HSA funds... then withdraw them later on in life tax-free, as long as you have medical receipts from some point during the life of your HSA that match the amount you are withdrawing. So I could have a medical bill in 2015 and wait until 2035 to be reimbursed for it, as long as I saved that bill. My HSA actually has a 2-step claim procedure to account for this... you submit receipts to the claims vault (so the receipt is saved to your account), then once it processes you can request reimbursement. Or you can not request reimbursement, and your account is credited for that amount whenever you need it.

H and I have actually started using our HSA as part of our emergency fund, and we do not request reimbursement if we can pay out of pocket for the medical expense.

cupcait927 · June 2015

short+sassy said:

I'm pretty sure @CuriousKiddosMama is right. It takes pretty significant out-of-pocket medical bills to be able to deduct them. Which I think is total B.S., but whatever.
And don't even get me started that I have to pay sales tax on prescription medication. Prescription medication!!!! (I know, I know, nothing to do with federal taxes).
However, why don't you just pay the bills now and then take the money out of the HSA as it gets paid in to "pay yourself back", so to speak? At least that is how my HSA works. I can request a check if I pay medical bills out of pocket and didn't use the HSA. Heck, I even have a Visa debit card for my HSA. I can withdraw money right out of an ATM. They don't even require documentation of what medical bills were paid...though, of course, the IRS sure would if you were ever audited.

This. This is how H and I use our HSA account. It's a regular checking account with a debit card. If I don't have enough money in the HSA account when I have to pay a bill, I pay out of my regular checking account or credit card and pay myself back as I get more money deposited into my HSA. We go through HSA Bank (employer's choice) and they don't require any documentation. Obviously we keep all receipts/statements/EOBs in case of an audit but we don't need them at the time we use the funds. And as @hoffse said, there's no time constraints on when you can use the money - so for example, medical expenses that you incurred in 2014 can be paid with 2015 dollars (unlike most FSA/HRA accounts).

short+sassy · June 2015

I know I am preaching to the choir, but HSAs are an amazing program if your employer offers one. Even for younger, healthy people who don't have many medical expenses now, the money rolls over forever. You can earn it tax free at the age of 18 and use it for medical bills 50 years later. Even when a person dies, the money in their HSA rolls over into their estate. Though I'm sure it gets taxed at that point and, for once, I understand why it would.

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Rhetorical questions, change of subject, things that aggravate me. Why do we have to pay taxes on inherited money when that money was typically ALREADY taxed when a person was alive? It's like it is taxed twice.

Why do we have to pay taxes on a used car when taxes were already collected when the car was brand new? Taxes will be paid on the SAME car 10 times, if it is sold 10 times.

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I max my HSA out every year but, alas, I do have significant enough recurring medical expenses I spend a good 70% of it within the year anyway.

@cupcait927, I think mine is administered through HSA Bank also.

smerka · June 2015

OP - you can deduct it. The 10% threshold applies. We actually were able to take this deduction for the first time this year due to a kid with autism and a bunch of other stuff. I would start keeping track (or recreate) the things that can be deductible like copays, coinsurance, prescriptions, OTC drugs specifically prescribed by your doctor, mileage to and from medical visits, dental, vision, etc.

smerka · June 2015

>Rhetorical questions, change of subject, things that aggravate me. Why do we have to pay taxes on inherited money when that money was typically ALREADY taxed when a person was alive? It's like it is taxed twice.
Only estates worth more than 5.43 million dollars are subject to estate tax. That probably eliminates 90+% of Americans. And a lot of things included in those estates haven't been taxed yet. Say you inherit 5.44 million dollars in real estate from a long lost uncle. He probably paid way less than that when he bought it so the increase in value has not been taxed (income tax). Plus if you have an estate worth more than 5.43 million dollars, you should be able to find some money to hire an attorney, accountant, and financial planner to Work on some tax avoidance strategies for you.

short+sassy · June 2015

smerka said:

>Rhetorical questions, change of subject, things that aggravate me. Why do we have to pay taxes on inherited money when that money was typically ALREADY taxed when a person was alive? It's like it is taxed twice.

Only estates worth more than 5.43 million dollars are subject to estate tax. That probably eliminates 90+% of Americans. And a lot of things included in those estates haven't been taxed yet. Say you inherit 5.44 million dollars in real estate from a long lost uncle. He probably paid way less than that when he bought it so the increase in value has not been taxed (income tax). Plus if you have an estate worth more than 5.43 million dollars, you should be able to find some money to hire an attorney, accountant, and financial planner to Work on some tax avoidance strategies for you.

Thanks for the clarification. That wasn't my understanding at all, which I have no doubt is due to my own ignorance on the subject

. I assumed most estates were taxed if someone other than the spouse inherited money/valuables. Just because it seems like there are so many articles and tips/strategies about tax avoidance strategies for estates.

vlagrl29 · June 2015

Life insurance is the only thing not taxed. Lets hope it stays that way.

Question Re: HSA/Taxes

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