This is some excellent news for individuals who had a well being financial savings account (HSA) final 12 months – you possibly can nonetheless contribute to the account if you have not already maxed out your 2020 contributions. HSAs supply a tax-efficient method to pay for medical bills, since employer contributions aren’t together with in your taxable earnings, earnings are tax-free, and distributions aren’t taxed in case you use them to pay certified medical bills. Plus, you may additionally qualify for a deduction (or bigger deduction) in your 2020 tax return. These are all good causes to contribute as a lot as you possibly can to your HSA for 2020.
However here is the catch — you solely have a pair days left to make this transfer. You might have till the tax filing deadline to make HSA contributions for the earlier calendar 12 months. In most years, that deadline falls on April 15. Nevertheless, this 12 months (like final 12 months), the tax submitting due date was pushed again as a part of the IRS’s response to the COVID-19 pandemic. So now you have got till Could 17 to contribute to an HSA for 2020. That is this coming Monday…so you could act shortly!
(For Monday’s different tax due dates, see 9 Tax Deadlines for May 17.)
HSA Contribution Limits for 2020
For 2020, you possibly can contribute as much as $3,550 to an HSA if in case you have self-only protection. If in case you have household protection, the max is $7,100. Anybody who was age 55 or older on the finish of 2020 can put in a further $1,000 in “catch up” contributions for the 12 months. (For all of the 2017 to 2022 contribution limits, see HSA Contribution Limits and Other Requirements.)
The contribution limits may be decreased, although. In case your employer makes contributions to your HSA which can be excludable out of your earnings – together with quantities contributed by a cafeteria plan – these contributions depend in opposition to your total restrict. In that case, the quantity you can contribute to your HSA is decrease.
Extra HSA Contributions
If you have not reached your restrict, take into consideration making a fast HSA contribution now if in case you have some further earnings out there (say, from a stimulus check). However do not go over your restrict! There is a 6% penalty on extra contributions. And this penalty applies to every 12 months the surplus contribution stays in your account.
If you happen to accidently put an excessive amount of cash in your HSA account for 2020, you possibly can withdraw the surplus quantity and keep away from the penalty in case you:
- Withdraw the surplus by Could 17, or by October 15 in case you request a tax submitting extension; and
- Withdraw any earnings earned on the withdrawn contributions and embody the earnings in “Different earnings” in your 2020 tax return.
If you happen to do not withdraw your extra contributions, you could possibly declare a tax break for them down the highway. Extra contributions from earlier years which can be nonetheless in your HSA account may be deducted, however the deduction is restricted to the lesser of (1) your most HSA contribution restrict for the 12 months minus any quantities truly contributed for the 12 months, or (2) the entire extra contributions in your HSA initially of the 12 months.
Deduction for 2020 HSA Contributions
As talked about above, you could possibly deduct your 2020 HSA contributions in your 2020 tax return (as much as the utmost contribution restrict). And you do not have to itemize to say this tax break. As an alternative, your contributions are reported as an adjustment to earnings on Line 12 of Schedule 1 (Type 1040). You have to submit Form 8889 along with your tax return, too. So, it may be sensible to place extra money into your HSA for 2020 earlier than Could 17 if you have not already reached the contribution restrict. That is very true in case you plan to contribution to the account quickly anyway. That method, you will get that further deduction for 2020 and save extra cap house for 2021 contributions.
There are some limitations, although. For example, you possibly can’t deduct HSA contributions made by your employer, together with pre-tax funds contributed by payroll deductions. You can also’t declare the deduction if another person can declare you as a depending on their tax return. Distributions from an IRA which can be contributed to your HSA in a direct trustee-to-trustee switch will not be deductible, both. Test the instructions for Type 8889 for all the foundations.
If you happen to already filed your 2020 tax return, you possibly can file an amended tax return after Could 17 to say a brand new or elevated HSA deduction in case you add extra to your account within the subsequent couple of days. You typically have three years from the date you filed your unique return or two years from the date you paid any tax resulting from file an amended return (go together with whichever date is later). We advocate e-filing your amended return, since it will likely be processed a lot sooner. When you file an amended return, you possibly can monitor its standing on-line utilizing the IRS’s “Where’s My Amended Return?” tool or by calling 866-464-2050.