Are Health Savings Accounts Pre-tax or Post-tax?

You can pay your doctor with your HSA funds.

With the price of medical care and health insurance premiums on the rise, consumers have a strong incentive to save money wherever they can. Some consumers are combining lower cost, high deductible health plans with health savings accounts (HSAs). Health savings accounts allow consumers to put aside money to cover the cost of health care, and unlike flexible spending accounts (FSAs), the money remaining in an HSA at the end of the year rolls over to the next.

Payroll Contributions

Many employers find that high deductible health plans save money for both businesses and workers. Some companies encourage workers to purchase high deductible health plans by offering to fund part of the annual contribution. In addition, companies may offer workers the ability to contribute pre-tax money to their own health savings accounts. These pre-tax contributions lower the taxable income for the worker and reduce the amount of tax liability. In order to qualify as a high deductible health plan, the insurance must have a deductible of at least $1,200 for individual coverage or $2,400 for a family plan.

Tax Deduction

Even if your employer does not offer a health savings account, you can still open one on your own. When you contribute to your own health savings account, you do so with post-tax dollars. You do, however, get a tax deduction for the amount you put in. Unlike many tax deductions, you can take the deduction for a health savings account even if you do not itemize your taxes. This is an important distinction since many taxpayers find that the total of their itemized deductions is less than the standard deduction provided by the IRS.

Contribution Limits

Whether you contribute pre-tax or post-tax dollars to your HSA, you must stay within the contribution limits set by the IRS. The tax agency reviews the contribution limits for health savings accounts on an annual basis and makes any changes it deems necessary. You always want to check the current limits before making your annual HSA contribution. For 2011 you can contribute up to $3,050 to a single HSA or $6,150 to a family plan. If you are 55 or older, you can contribute an extra $1,000, for a total contribution limit of $4,050 and $7,150, respectively.

Yearly Contributions

The money you contribute to your health savings account is yours to keep and yours to spend on any eligible health care expenses, including co-payments for doctors' visits and the cost of prescription drugs. This means that any money remaining in your HSA at the end of the year remains in the account and rolls over to the next year. When the first of the year arrives, you can contribute additional money to the HSA and take the appropriate tax deduction for that contribution.