Stay Ahead of Law Changes & Protect Yourself Against Being Audited: Corporate Transparency Act and Reasonable Compensation

Healthcare and Taxes: Navigating Health Savings Accounts (HSAs) and Medical Expense Deductions

The Impact of Taxes on Your Healthcare Choices

Healthcare costs can be a significant financial burden, but tax-advantaged accounts like Health Savings Accounts (HSAs) and deductions for medical expenses can help mitigate these costs. Understanding these benefits can lead to substantial tax savings and financial relief. This article explores the intricacies of HSAs and the medical expense deduction, providing essential information for maximizing tax benefits related to healthcare expenses.

Health Savings Accounts (HSAs)

An HSA is a tax-advantaged account designed to help individuals save for medical expenses. Contributions to an HSA are tax-deductible, the earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free.

Eligibility Requirements

To qualify for an HSA, you must be enrolled in an High Deductible Health Plan (HDHP). For 2023, the IRS defines an HDHP as a plan with a minimum deductible of $1,400 for an individual or $2,800 for a family. Additionally, the out-of-pocket maximums are capped at $7,050 for individuals and $14,100 for families.

Contribution Limits

For 2023, individuals can contribute up to $3,850, and families can contribute up to $7,750 to an HSA. Individuals aged 55 and older can make an additional catch-up contribution of $1,000.

Tax Benefits

Contributions to an HSA are made with pre-tax dollars, reducing your gross income and, consequently, your tax liability. The growth of investments in an HSA is tax-free, and withdrawals for qualified medical expenses are also tax-free. This triple tax advantage makes HSAs a powerful tool for managing healthcare expenses.

Source: IRS – Publication 969

Medical Expense Deduction

Even if you don’t have an HSA, Taxpayers who spend a significant amount on medical care may be able to deduct part of their expenses from their taxable income. This deduction can provide financial relief by lowering taxable income for those with high medical costs.

Qualifying Expenses

Medical expenses that qualify for the deduction include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatments affecting any part or function of the body. These expenses must be primarily to alleviate or prevent a physical or mental defect or illness.

Deduction Threshold

For the tax year 2023, you can deduct out-of-pocket medical expenses that exceed 7.5% of your adjusted gross income (AGI). Only the expenses that exceed this threshold can be deducted.

How to Claim

To claim the medical expense deduction, you must itemize your deductions on Schedule A (Form 1040). This means that the total of all your itemized deductions should be more than the standard deduction for your filing status to benefit from itemizing, even if your medical deductions exceed the 7.5% threshold.

Source: IRS – Medical and Dental Expenses

Impact on Taxpayers

The combination of HSAs and the medical expense deduction can significantly reduce the financial impact of healthcare costs. For example, a family with an AGI of $100,000 and medical expenses of $10,000 can deduct $2,500 of their expenses (the amount that exceeds 7.5% of their AGI).

Fun Fact: HSAs were established as part of the Medicare Prescription Drug, Improvement, and Modernization Act in 2003 and have since become a popular way for Americans to manage healthcare expenses tax-efficiently.

Health Savings Accounts and the medical expense deduction offer valuable tax benefits that can help offset the high costs of healthcare. By understanding and utilizing these tax-advantaged strategies, taxpayers can significantly reduce their tax liability and manage healthcare expenses more effectively. Always ensure to keep detailed records and receipts of all medical expenses and contributions to make the most of these tax benefits.

If you have significant medical expenses or are interested in learning more about the benefits of an HSA, give us a call! We’d be happy to schedule a consultation to apply the tax code to your personal circumstances.

 

Additional Reading: 

Should I Open an HSA Account?

 

 

The Molen & Associates Difference

Mike Forsyth

“Super helpful and timely. This is our first year with them and we look forward to trusting them with our taxes and business books for years to come.”

Caitlin Daulong

“Molen & Associates is amazing! They run an incredibly streamlined process, which makes filing taxes a breeze. So impressed with their attention to detail, organization, and swift execution every year. Cannot recommend them enough!”

Sy Sahrai

“I’ve been with Mr. Molen’s company for few years and I felt treated like family respect and dignity. They are caring, professional and honest, which hard to find these days. Love working with them.”

Divorce and Taxes: Filing Status, Alimony, and Dependents

Divorce and Taxes: Filing Status, Alimony, and Dependents Divorce brings significant emotional and financial changes, and one area that’s often overlooked is how it impacts your taxes. From determining your filing status to understanding alimony rules and claiming...

Breaking Down the One Big Beautiful Bill (OBBB): What the 2025 Tax Reform Means for You

On July 1, 2025, the U.S. Senate passed one of the most significant tax reform bills in recent history: the One Big Beautiful Bill (OBBB). With the House expected to approve the final version shortly and a presidential signature likely to follow, this sweeping...

Major life changes and taxes

How Major Life Changes Affect Your Taxes (Hint: You’re Going to Like It) Major life changes and taxes—like getting married, moving, or having a baby—are exciting milestones that often come with significant financial adjustments. But here’s some good news: these events...

What happens if you don’t file on time

Got IRS Penalties? Know the Rules, Pay Nothing If you’ve received a penalty notice from the IRS, don’t rush to pay it. There are ways to reduce or even eliminate IRS penalties if you know how to approach the situation. Whether you’re facing late filing, late payment,...

Want to deduct your dog? Here’s how?

Three Ways to Deduct Your Dog, Cat, or Other Animal Expenses Owning a pet is often an expensive yet rewarding experience, with annual costs for dogs ranging from $1,270 to $2,800. While the love and companionship pets provide are invaluable, the IRS views their...

Claim $1600 Stimulus Check – IRS 2025 Rebate & Eligibility

As millions of Americans continue to grapple with financial challenges post-pandemic, questions surrounding the $1600 stimulus check, IRS 2025 payments, and the Recovery Rebate Credit are trending once again. Whether you missed out on a past stimulus payment or are...

Bookkeeper vs. Accountant: What’s the Difference?

Bookkeeper vs. Accountant: What's the Difference? Managing your business’s finances is essential for long-term success, but understanding the roles of a bookkeeper and an accountant can be confusing. In the debate of Bookkeeper vs. Accountant: What's the Difference?,...

How to Set Up Your IRS Online Account with ID.me

ID.me and the IRS Login System ID.me is a third-party identity verification service that the IRS uses to provide secure access to certain online tools and services. If you need to access your IRS account online, such as to view your tax records, get your transcripts,...

What Is the One Big Beautiful Bill Act? Key Tax Changes for 2025 and Beyond

Big Beautiful Bill Act Changes Your Taxes If you’re a taxpayer, business owner, or financial advisor, the “One Big Beautiful Bill Act” (OBBB) could impact your tax strategy in major ways. Passed by the House of Representatives in May 2025, this sweeping tax reform...

5 Signs Your Business Needs Accounting Help

5 Signs Your Business Needs Accounting Help Running a successful business requires more than a great product or service—you need a solid handle on your finances. However, many small business owners and self-employed professionals find themselves overwhelmed by the...

Request an Appointment Today

3 + 10 =

Call us at

Share This