full-year contribution is made for 2021 and the HSA owner ceases. If you cash out the money before you’re 65 (and don’t use the money for qualified medical expenses), you’ll have to pay taxes on the amount, and you could be hit with a hefty 20% tax penalty. The money you spend for eligible expenses is tax-free. Some people even view their HSA as an added retirement account. It’s a smart way to save and pay for eligible healthcare expenses, because employees don’t have to pay federal or FICA taxes on the money they put. Or you can use it for non-medical expenses, just pay your regular income tax. A Healthcare Flexible Spending Account (HC-FSA) is an employer-sponsored account letting employees set aside pre-tax dollars to pay for eligible healthcare expenses. You can continue to withdraw the money tax-free for medical expenses. It can also be used to pay for many other health care services and items that may not be covered by your health plan. If you’re over 65, there are no stipulations on how you can use the money. Money spent on qualified medical expenses comes out of your HSA income tax-free. A health savings account (HSA) can be used to pay for many covered health care services and products for yourself, your spouse and even tax dependents.If you’re under 65 and use the dollars for qualified medical expenses, you can withdraw the money tax-free.Since you own the account, the funds roll over year to year and the money stays with you - regardless if you leave your job or retire. There’s no “use-it-or-lose it” policy.The money can sit in your account and potentially grow over time, all of it tax-free. See IRS.gov/Newsroom/IRS-Cost-of-Home-Testing-for-COVID-19-Is-Eligible-Medical-Expense-Reimbursable-Under- FSAs-HSAs. You can invest your funds, and the interest or income is tax-free. The cost to diagnose COVID-19 is an eligible medical expense for tax purposes, which means the cost of home testing for COVID-19 for you, your spouse, or your dependent(s) may be paid or reimbursed from an HSA.When you make contributions, your taxable income is reduced. The money you contribute is tax-deductible.You can make deposits like you do with other personal bank accounts. You own the account, not your employer.After you enroll in a high deductible health plan and set up your HSA, you can begin contributing to the account. Rev- enue Procedure 2021-45, November 10, 2021, provides that for tax years beginning in 2022, the dollar limitation under section 125(i) on voluntary employee salary reduc- tions for contributions to health flexible spending arrange- ments is 2,850.
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