It’s Not Too Late to Maximize Your 2016 HSA Contributions: Contribute Until April 17, 2017
One of the big pros of enrolling in a high-deductible health plan is that it is paired with a Health Savings Account (HSA). A HSA gives individuals the ability to make pre-tax contributions that can grow federally tax-free over time and be used for qualifying medical expenses.
Every year the Internal Revenue Service (IRS) sets the annual HSA maximum contribution limit for the calendar year. To make the most of a HSA, you’ll want to deposit as much money as your budget will allow up to that maximum to save on federal taxes, and to create a cushion of federally tax-advantaged funds. These funds can be used should you have eligible healthcare expenditures that you need to pay for out of your own pocket in the future.
You have longer than you think to save
Many people think that they can no longer contribute towards the 2016 annual contribution limit after December 31, 2016. However, the good news is that you have until Monday, April 17th, 2017, the standard tax-filing deadline for 2016 filings, or the date you file your individual tax return if earlier, to make your contributions for the 2016 calendar year.
But how do you do this on or after January 1, 2017? Since you cannot make payroll deductions to a HSA for a prior tax year, you’ll need to either write a personal check or electronically transfer money from your personal bank account to your HSA bank or administrator. When you do this, you need to make it very clear on the check, deposit slip or online notes that the contribution is for 2016. Otherwise, they will assume it is a deposit for the new year.
Now, you want to make sure to get that tax break for this manual, personal contribution. When you file your 2016 taxes, any personal contributions, outside of employer payroll deductions, can be subtracted from your taxable income as an “above the line deduction,” which is an allowable manual reduction of taxable income reported in your tax filing.
Any pre-tax payroll deductions deducted during the prior year will be reflected on your employer issued W-2. You will only take an above the line deduction if you made a contribution outside of your employer’s payroll. If you have questions about this, please consult a professional tax consultant or accountant.
What are the 2016 HSA annual contribution limits?
- Single Coverage (meaning only you are covered on your medical plan):$3,350.
- Family Coverage (meaning you also cover a spouse or dependents on your medical plan): $6,750.
- If you are age 55 or older, you may make an additional $1,000 annual contribution for the year.
- These maximums include any contributions made by you and your employer.
Maximizing the 2016 HSA contribution limit allows you to save more tax-advantaged dollars even after the calendar year has ended. If you have questions about the rules and regulations around HSAs, TriNet advises you to contact the bank or administrator that holds your HSA funds or refer to the IRS website for additional detail on the rules.
This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.
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