Viability of Health Savings Accounts for Central PA Earners

I know the end of the year is pretty filled up, so you’re usually not thinking about tax season.

But, as your friendly Central PA tax professional who wants to keep your head in the game in advance of tax season, here’s a great checklist from the IRS to get you ready. 

I’ve also got a pretty detailed list of what you’ll need for your tax filing appointment in 2024. While it’s still early and you’ll probably wait to file until February or later, preparing now means less headache later. 

Healthcare is also a topic on many of my Pennsylvania clients’ minds right now, it being re-enrollment season and all. While healthcare costs can be a real headache, there’s good news with Congress’s latest proposed tweaks to Health Savings Accounts (HSAs). 

 

If you’re juggling high healthcare deductibles, an HSA could be a good option for reducing those. An HSA, in very simple terms, is like a piggy bank but for your health… and it comes with some cool tax breaks. 

Viability of Health Savings Accounts for Central PA Earners
“It is health that is real wealth and not pieces of gold and silver.” – Mahatma Gandhi

Recently, Congress’s Ways and Means Committee proposed enhancements to Health Savings Accounts (HSAs) with two bipartisan bills: the HSA Improvement Act and the HSA Modernization Act. 

The good news about HSAs is they offer triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are not taxed. With 78% of HSAs owned by people earning less than $100,000, this kind of account could be a key tool for your financial and tax planning.

Also, the IRS adjusted the HSA contribution limits for inflation this year. That way you can save on taxes and keep more money for those doctor visits. In 2024, if you have high deductible health plan (HDHP) coverage, you can tuck away up to $4,150 for yourself or $8,300 for the family in your HSA. Over 55? You get to add an extra $1,000. 

But before I go further, let’s discuss basic terms so we’re on the same page.

Health savings piggy bank (sort of)

An HSA is a savings account for individuals with HDHPs. An HSA allows you to pay high deductibles using your pre-tax dollars. Any contributions you make to your HSA can be pre-tax (if through an employer) or tax-deductible (if personal contributions) — distributions for medical expenses being tax-free. 

Unlike flexible spending accounts (FSAs), HSAs don’t have a use-it-or-lose-it rule. HSA funds carry over year after year.

And, after you turn 65, funds can be withdrawn for non-medical purposes — with income tax tacked on.

What’s changing with HSAs?

The changes proposed by the new bipartisan bills include increased contribution limits, expanded eligibility, and reduced bureaucratic barriers. 

Other more specific changes are happening under each bill as well.

HSA Improvement Act changes:

  • Allowing individuals with direct primary care or worksite health clinics to contribute to HSAs
  • Lifting the ban on individuals whose spouses have an FSA
  • Enabling FSA or health reimbursement arrangement (HRA) conversion to HSAs

HSA Modernization Act changes:

  • Expanded HSA eligibility to veterans, working seniors on Medicare, Native Americans, and certain health exchange plan members
  • Increased contribution limits allow for HSA funds for health care services incurred 60 days prior to account establishment and enable spouses to contribute to the same HSA 
  • Broadened access to mental and home health care for HSA contributors 

These modernization changes are expected to take effect in 2026, and their aim is to expand HSA eligibility and simplify access, a move that could reshape how you interact with these accounts.

The practical part

Now, let’s talk about real-life impact. If you’re making less than 100 grand a year, like many people, HSAs are a big deal. They’re an easier way to handle your healthcare costs without breaking the bank. 

Some practical things you can do now. 

  1. Review your eligibility. Check if you qualify for an HSA and understand your health plan.
  2. Maximize your contributions. With increased limits, contribute as much as possible to maximize your tax benefits. Remember, every dollar in your HSA is a dollar less for Uncle Sam.
  3. Understand qualified expenses. Know what your HSA covers to optimize its use. HSA dollars can be a variety of medical things from prescriptions to unexpected doctor visits.
  4. Plan for the long term. Consider your HSA as part of your retirement strategy.

All of these moves are good news for you if you’re in the middle- to lower-income taxpayer bracket. They mean more flexibility and a bigger safety net for your health and wallet. I’ll keep an eye on these changes and continue to offer tax-advantaged insights to help make an HSA work for you. 

 

Also, you still have time before year-end to maximize your 2023 tax savings and position yourself well for filing. If you have any updates or changes to make to your tax situation, let’s connect soon. The end of the year will be here before you know it.

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Making your tax season easy and light

Tina Nail

 

 

 

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