Google
 

Home | Finance | Insurance


Health Savings Accounts and Taxes

By: Kurt Stammberger

HSAs have a "triple" tax advantage from a federal tax standpoint. Individuals receive full tax advantages for HSAs on their Federal Income Tax return (or through a salary reduction program in certain employer-sponsored settings) regardless of particular state's tax treatment of HSAs.

An account beneficiary may take an above-the-line deduction (i.e. the amounts may be used to determine the individual's adjusted gross income before any itemized or standard deductions are considered) for contributions made to an HSA during any month of the individual's taxable year that the individual is eligible. The permitted deduction cannot exceed the sum of the "monthly limitations" for such months. In 2006, the monthly limitation for any month is 1/12th of the following amounts:

- For those with single coverage on the first day of the month, the lesser of the annual deductible under the HDHP or $2,700.

- For those with family coverage on the first day of the month, the lesser of the annual deductible under the HDHP or $5,450.

Funds in an HSA grow on a tax-deferred basis, and distributions from an HSA are tax-free so long as the funds are used for qualified (as defined by Section 213d of the IRC) health care expenses.

How does state tax treatment of HSAs differ from federal tax treatment?

HSAs (and the enabling legislation) are federal. As a federal program, each state decides whether to: a) comply with the federal guidelines, or; b) establish their own state guidelines regarding the tax treatment of HSAs. As a result, some income that may be tax-free at the federal level may not be tax-free at the state level.

Many states harmonize their tax treatment with the federal government. Those states include Arizona, Arkansas, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Iowa, Indiana, Kansas, Kentucky, Louisiana, Maryland, Missouri, Mississippi, New York, Montana, Nebraska, New Mexico, Oklahoma, North Carolina, North Dakota, Pennsylvania, South Carolina, Oregon, Rhode Island, Virginia, Utah and Vermont.

Other states, however, treat HSAs differently from the federal government, at least for tax purposes. The following states have indicated that legislation must be passed at the state level before HSAs receive a tax benefit at the state level: California, Illinois, Maine, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, Ohio, Washington DC, Wisconsin, West Virginia and Tennessee. New Hampshire and Tennessee do not tax income, but do tax dividends and interest. Alabama has not indicated their position regarding state-level tax benefits for HSAs.
Finally, some states are not affected by federal income tax guidance vis-à-vis HSAs: those states include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

About the author:
Kurt Stammberger is VP, Marketing at Healthia Inc. Healthia provides integrated comparison-shopping information on health care products and services, doctors and health insurance plans to empower the drive towards Consumer-Driven Health Care.

More articles like Kurt Stammberger's at articlesAtoZ.com

Tell us (and others like yourself) how much you like this Article

 

Not yet Rated

Click the XML Icon to Receive Insurance Articles Via RSS!

Additional Articles From - Home | Finance | Insurance
This Article
Members & Authors
Submit Articles
Member Login or Sign Up
Webmasters/Ezine Tools
Top Authors
Most Popular Articles
Submission Guidelines
Ezine Notifications
Article RSS Feeds
Additional resources

Article Search

GoDaddy.com Hosting & Servers
Make sure no one takes your name!
GoDaddy.com - Home of the $1.99 domain name
Self Promotion
Articles A to Z.com
Link to Us
Contact Us
Privacy Policy
Terms of Service
Monetize Your Site

Get 1750 private label articles and 15 reports!

Promote Ebooks with ClickBank
CBMall & PayDotCom

CPA Empire
Modern Click

The Affiliate Classroom
The Science of Getting Rich

Send me One Million FREE Guaranteed Visitors

 Search the Web: Try my searchEstate search engine

Highly Recommended

NEW - FREE
INSTANT DOWNLOAD

"12 Little-Known, Niche eBay Markets You Can Profit from Now!"

Grab your complimentary (absolutely FREE) copy right now!




© 2007 Articles A to Z.com™ All Right Protected.
Use of our free service is protected by our Privacy Policy and Terms of Service
An operating unit of SiteBoosters.net

Disclaimer All articles published by www.articlesAtoZ.com are for informational purposes only.
All articles are not meant to be used for legal, medical, or any other type of advice.






Powered by Article Dashboard