April 15, also known as Tax Day, is closer than you think. Despite our anxiety about taxes, there are ways you can save or maximize your hard-earned money, especially when it comes to healthcare. If you are enrolled in a high-deductible health plan, you are eligible to take advantage of a Health Savings Account (HSA), which allows you to save money on a pre-tax basis and use these funds to pay for healthcare-related expenses without being taxed.
HSAs can be used help pay for a wide variety of health-related expenses for you and your dependents, saving you money by putting these funds aside tax-free. You have flexibility to use these funds as needed for healthcare and can shop around in your area for the best value on eligible expenses. Additionally, your employer may also contribute funds to your HSA, providing “free money” that you can use as needed for healthcare expenses. Eligible expenses include, but are not limited to:
- Breast pumps and supplies
- Contact lenses and eyeglasses
- Hearing aids
- Laboratory fees
- Long-term care
- Psychiatric care
For a full list of eligible expenses, visit the IRS website here. It’s also important to keep in mind which expenses may not be eligible, including childcare for a healthy baby, cosmetic surgery, health club dues, maternity clothes, and nonprescription medications, among other items. If you have any specific questions about what is considered eligible, be sure to consult your HSA administrator or a tax expert to avoid paying a penalty on non-qualified expenses.
While HSAs can save you money throughout the year on healthcare, there are a few things you can do during tax season to further maximize savings with an HSA, including:
- Take advantage of the triple threat – With an HSA, the amount contributed is a part of a triple tax advantage; tax-free contributions, tax-free withdrawals for qualified medical expenses and tax-free interest earned on savings, making it worthwhile to contribute more if possible to save money on taxes while putting funds away for future expenses.
- Earn interest – Unlike funds contributed to a Flexible Spending Account (FSA), unused HSA funds can roll over from year to year and collect interest over time, so if you don’t need all the money this year, you can keep it for future expenses.
- Continue contributing – The deadline to contribute to an HSA to maximize savings for 2020 taxes is April 15, 2021. For the 2020 tax year, individuals can contribute up to $3,550, and families have a maximum of $7,100. As in previous years, people 55 and older can contribute an additional $1,000 catch-up. If you’re able, there are many benefits to contributing the full amount each year, especially since the funds continue to roll over tax-free.
Check with your health plan administrator or human resources department to confirm if you are eligible to open and contribute to an HSA. These accounts offer many financial and health benefits that can help you save money during tax season and year-round.