When the COVID-19 crisis erupted in March, the IRS reacted fairly quickly. He first pushed the tax deadline back to July 15, and quickly made the same adjustment to the tax filing deadline as well. In total, taxpayers have been given an additional three months to order their returns, but now that the new deadline is fast approaching, it’s time for Americans to buckle up and get on with their taxes.
However, the good news is that because the tax filing deadline was delayed by three months, the contribution deadline for Health Savings Accounts (HSA) was also postponed. That means you can still fund your 2019 HSA and reap significant savings in the process.
How does an HSA work?
An HSA allows you to contribute pretax dollars for medical expenses that you can use right away or save for the future. Unlike flexible spending accounts, which require you to drain your balance year after year, HSA funds never expire. The money that comes in can be invested to grow into an even larger sum, and then HSA withdrawals are tax-free as long as they are used to cover qualified medical expenses.
The amount you can contribute to an HSA changes from year to year. In 2019, the maximum was $ 3,500 for individuals and $ 7,000 for families, plus an additional $ 1,000 for savers 55 and older (those additional $ 1,000 is comparable to the recovery contributions offered to older workers in 401 (k) and go to).
What does that mean from a tax saving perspective? Imagine you are in the 24% tax bracket and you put $ 7,000 into your 2019 HSA. That means you have instantly cut $ 1,680 off your 2019 tax bill. If you underpaid your taxes and owed the IRS money, you will have than pay much less. And if you get a refund, you’ll get a higher one.
Of course, not everyone is eligible to contribute to an HSA in the first place. To qualify, you must have been enrolled in a high deductible health insurance plan last year. That means your deductible must have been $ 1,350 or more at the individual level, or $ 2,700 or more at the family level. Your annual out-of-pocket maximum also had to be limited to $ 6,750 as an individual, or $ 13,500 for a family. (Note that all of these figures are slightly different in 2020.)
Act quickly to fund your HSA
If you’re worried about your 2019 tax bill and didn’t hit last year’s HSA maximum, or didn’t contribute to one, then it’s worth putting some money into that account for the next two weeks. But don’t delay – it could take some time to transfer those funds, so waiting until the last minute is a bad idea. Also remember that an HSA will not only save you money on taxes; It will also help ensure that if medical costs arise unexpectedly, you will have funds allocated to pay for them. And that peace of mind only makes an HSA worthwhile.