Looking for a tax break? Making a prior-year contribution to your HSA could help you out

Preparing your tax return is probably not the highlight of your year, especially if you happen to owe taxes. But, here’s a tip that could help lift your spirits. Making an additional contribution to your previous year’s Health Savings Account (HSA) could help reduce the amount of federal tax you owe.

More good news: You can make contributions beyond the end of the calendar year, all the way up until the tax filing deadline of the following year.

So, if you haven’t maxed out your contributions from last year,* this could be your chance to ensure you are getting the full benefit of your tax-advantaged account. Contributions you make directly to your HSA are eligible for federal tax deductions.

Reducing taxes is just one benefit of making an additional contribution to your prior-year HSA. Your extra contribution can also help add a little cushion to your account balance to help you be prepared for health care expenses as they arise—whether that’s tomorrow, next year or into retirement.

Reasons to consider making a year-end HSA contribution

  • Reduce your taxes
  • Make sure you’re maximizing the value of your account, including the potential for tax-free growth and tax-free withdrawals
  • Get ahead of health care expenses for the coming year
  • Build your balance for the future

Checking in with Kai

Kai participates in the HSA offered by his employer. Let’s take a look at how he uses his HSA to both reduce his tax payment and build his balance for the future.

Kai gets paid twice monthly and contributes $100 to his HSA per pay period, with a total annual contribution of $2,400. Money he contributes via payroll is pre-tax so he is not paying taxes on his contributions. At the end of last year, he received a $5,000 bonus from his employer and decides to make an additional HSA contribution of $1,000 at the beginning of the following year. Kai is in the 22% federal tax bracket, so the additional $1,000 contribution has potential to save him $220 on his tax bill. In addition, he now has an extra $1,000 in his account to grow tax-free for the future.

Contribute before this year’s tax deadline

You can make a contribution with just a few simple steps using the member website or MyHealth app.

Member website

  • Select “Make HSA Transaction” > follow the on-screen instructions.

MyHealth app

  • Select “Make HSA Transaction” > “Contribution” > follow the on-screen instructions.

Contribution deadline

You may contribute funds for the current year up until Tax Day of the following calendar year. Be sure to choose the checkbox for the prior year to be sure the contribution is applied correctly.

You can thank yourself later

Regardless of the amount you contribute—whether it’s $100 or $2,000—you may be looking at tax season in a whole new way. And, with rising health care costs, you are going to be glad you set aside some extra dollars to pay for qualified health care expenses in the years to come.

* Make sure the total of all employer, payroll and individual contributions do not exceed the applicable IRS limit.

About Tax Benefits: You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. Any interest or earnings on the assets in the account are tax-free. You may be able to claim a tax deduction for contributions you, or someone other than your employer, make to your HSA. Certain limits may apply to employees who are considered highly compensated key employees. Bank of America recommends you contact qualified tax or legal counsel before establishing an HSA.

Neither Bank of America nor any of its affiliates provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

State and/or local income tax treatment of payroll contributions may vary. Participants may wish to consult with a tax advisor regarding the state income tax treatment of such contribution.