Today is the last day for you to contribute the full amount to HSA 2021 and to reduce your taxes. There’s good news for those who have a HSA last year: you can still contribute to it if your 2021 contributions are not exhausted. HSAs can be a tax-efficient method to pay medical expenses. Employer contributions are not included in your taxable income. Earnings are exempt from tax, and distributions don’t have to be taxed if they are used to pay for qualified medical expenses. You might be eligible for a deduction on your 2021 tax return. These are good reasons to make sure you contribute as much as possible to your HSA in 2021.
Here’s the catch: you have only until April 18th to make this change. You have one year to file your tax returns and make HSA contributions. This deadline is usually on April 15. This year, however, the tax filing deadline was moved back to April 18, for most people, due to the Emancipation Day holiday, Washington, D.C. Today is the last day you can contribute to your HSA for 2021. You have only a few hours to do so!
- HSA Contribution Limits 2021
If you have self-only coverage, you can contribute up $3,600 to an HSA for 2021. The maximum contribution for family coverage is $7,200. For those who were 55 years old or older at the close of 2021, an additional $1,000 can be made in “catch-up” contributions. (For the entire 2017-2022 contribution limit, please see HSA Contribution Limits & Other Requirements.
However, the contribution limits can be reduced. Your total limit is affected if your employer contributes to your HSA which are not deductible from your income. This includes contributions made through a cafeteria plan. If this happens, your HSA contribution limit is lower.
- HSA Contributions Exceedingly
If you don’t have enough income, you might consider making an HSA contribution if you are still within your limit. But don’t go over your limit! Excessive contributions are subject to a penalty of 6% This penalty is applicable to every year that excess contributions remain in your account.
You can withdraw any excess money from your HSA account in 2021 if you are unable to pay the penalty.
You can withdraw the excess today, or tomorrow if you are in Maine or Massachusetts. If you ask for a tax extension, you must do so by October 17.
Draw any income from withdrawn contributions, and include it in “Other Income” on your 2021 tax returns.
You may be eligible for a tax break if you don’t withhold excess contributions. You can deduct excess contributions from prior years that are still in the HSA account. However, the amount you can deduct is limited to (1) the maximum HSA contribution limit per year less any contributions actually made for the year or (2) the total HSA contributions at the beginning.
- Deduction for 2021 HSA contributions
You may be eligible to deduct 2021 HSA contributions from your 2021 tax return, up to the maximum contribution limit. It’s an “above the line” deduction so you don’t need to itemize in order to claim this tax break. Instead, your contributions will be reported on Line 13 (Form 1040) as an adjustment to your income. Also, you will need to include Form 8889 along with your tax returns. If you have not reached your contribution limit (before April 19, for Massachusetts residents), it may be a good idea to add more money to your HSA for 2021 prior today’s deadline. This is especially true if your plan to contribute to the account in the near future. This will allow you to take an additional deduction for 2021, and also save space for your 2022 contributions.
However, there are limitations. You can’t deduct HSA contributions paid by your employer, even pretax funds that you contributed via payroll deductions. If someone else is able to claim you as a dependent, you can’t claim this deduction. Also, distributions from an IRA which are made in a direct trustee to trustee transfer are not deductible. For all details, refer to Form 8889 Instructions.
You can file an amended tax returns if you have already filed your 2021 tax returns. This will allow you to claim a new or higher HSA deduction, if you add more funds to your account today. The deadline to file an amended tax return is generally three years from when you filed the original return. You can also file one two years after the date that you pay any tax due. Choose the later date. Your amended return will be processed faster if you e-file it.