Health Savings Account Blog

Currently, businesses are allowed to deduct the cost of health insurance from their income taxes. Individuals who buy their own health insurance, however, cannot deduct this expense, and must pay taxes on the entire premium. Only if an individual is self-employed are they allowed to deduct the cost of their health insurance from their taxes.

President Bush has also proposed providing a contribution of $1,000 to the HSAs of low-income families (those making at most $25,000 per year), along with a $2,000 refundable tax credit toward purchase of a high-deductible insurance policy to cover major medical expenses. This could be a great way to help low-income families protect themselves from major medical expenses, and can also be a way to reward them for staying healthy.

As with all HSAs, any money not withdrawn from the account to pay for medical expenses grows tax deferred, and can be used to pay for medical expenses tax-free at any time. If the money is not needed for medical expenses, it can be withdrawn for any reason, penalty free, after age 65. If it is withdrawn before age 65 for non-medical reasons, income taxes and a 10% penalty must be paid on the withdrawal at that time.