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vmsprague
Level 1

Should I use money from an HSA account for the first part of my medical expenses (say the first 7.5%) when I intend to deduct anything above that amount on my taxes?

If I have significant medical expenses, where I will be able to deduct an amount above the limit from my federal taxes (either 7.5% for 2020 or 10% for 2021) should I pay the first non-deductible portion with an HSA account or will that reduce the taxable amount of my medical expenses?
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Opus 17
Level 15

Should I use money from an HSA account for the first part of my medical expenses (say the first 7.5%) when I intend to deduct anything above that amount on my taxes?

Using the same medical expenses to satisfy the 7.5% AGI rule and pay them tax-free from an HSA is double-dipping.  Any expenses that you pay from the HSA are not deductible and don't apply to schedule A in any manner, including satisfying the AGI limit.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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6 Replies
Critter-3
Level 15

Should I use money from an HSA account for the first part of my medical expenses (say the first 7.5%) when I intend to deduct anything above that amount on my taxes?

Ok ... that will not work ... anything paid using an HSA cannot be used on the Sch A ... so you are just shooting yourself in the foot. 

Opus 17
Level 15

Should I use money from an HSA account for the first part of my medical expenses (say the first 7.5%) when I intend to deduct anything above that amount on my taxes?

Using the same medical expenses to satisfy the 7.5% AGI rule and pay them tax-free from an HSA is double-dipping.  Any expenses that you pay from the HSA are not deductible and don't apply to schedule A in any manner, including satisfying the AGI limit.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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vmsprague
Level 1

Should I use money from an HSA account for the first part of my medical expenses (say the first 7.5%) when I intend to deduct anything above that amount on my taxes?

@Opus 17  @Critter-3 Thanks for the clear answer.  I wanted to ask before the 2021 year began so I can make plans/decisions about how to handle the anticipated costs.  I appreciate it.

Opus 17
Level 15

Should I use money from an HSA account for the first part of my medical expenses (say the first 7.5%) when I intend to deduct anything above that amount on my taxes?

Be aware that you can also reimburse yourself retroactively, as long as the HSA account was established before the date of the medical procedures. For example, if you were to pay $20,000 out of pocket and you only had $5000 in your HSA, you could reimburse yourself the remaining amount by depositing money into the HSA (up to your annual limit), getting the tax deduction, and then immediately withdrawing it again to reimburse yourself for the previous expenses.  With the single limit of $3600 per year or the family limit of $7200 per year, it might take you several years to fully reimburse yourself, but you would eventually get a much larger tax benefit than if you took the items as a deduction on your federal return subject to the AGI limit.

 

You will also want to maximize your contributions into your HSA if you know that you have a large upcoming expense.  Your contribution limits depend on whether you were covered by a self only or a family insurance plan and whether you are over age 55.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
NCperson
Level 15

Should I use money from an HSA account for the first part of my medical expenses (say the first 7.5%) when I intend to deduct anything above that amount on my taxes?

are we back to 7.5% threshold for medical deductions on schedule A for tax year 2021? I can find the 10% anywhere and that is what @vmsprague originally stated. 

DoninGA
Level 15

Should I use money from an HSA account for the first part of my medical expenses (say the first 7.5%) when I intend to deduct anything above that amount on my taxes?


@NCperson wrote:

are we back to 7.5% threshold for medical deductions on schedule A for tax year 2021? I can find the 10% anywhere and that is what @vmsprague originally stated. 


Yes, the 7.5% of AGI for medical expenses on Schedule A is valid for tax year 2020.  For tax year 2021 it will be 10% of AGI unless Congress changes it again.

See this Forbes website - https://www.forbes.com/sites/kellyphillipserb/2020/10/26/irs-releases-2021-tax-rates-standard-deduct...

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