Do I have to report HISA interest on taxes?
If you have a Health Savings Account (HISA), you may be wondering whether you need to report the interest earned on your account when filing your taxes. The answer to this question depends on a few factors, including the type of HISA and how the interest is earned. In this article, we will explore the rules and guidelines surrounding the reporting of HISA interest on taxes.
Understanding Health Savings Accounts (HSAs)
A Health Savings Account is a tax-advantaged savings account designed for individuals with high-deductible health plans (HDHPs). HSAs allow account holders to save money for qualified medical expenses on a tax-free basis. Contributions to an HSA are made with pre-tax dollars, which means that the money is not subject to federal income tax at the time of deposit.
Earned Interest on HSAs
Interest earned on HSAs is tax-free, provided that the funds are used for qualified medical expenses. This means that you do not have to report the interest earned on your HISA when filing your taxes. The IRS considers the interest as part of the account’s earnings and not as taxable income.
Reporting HISA Interest on Taxes
However, if you withdraw funds from your HISA for non-qualified medical expenses, you may be required to report the interest earned on those funds as taxable income. In this case, you will need to include the interest amount on line 21 of Form 1040, along with the amount of the non-qualified withdrawal.
Qualified Medical Expenses
It is important to note that not all medical expenses are considered qualified for HISA withdrawals. Qualified medical expenses include, but are not limited to, doctor visits, hospital stays, prescription medications, and insurance premiums. If you are unsure whether a specific expense is qualified, you can refer to the IRS publication 502 for more information.
Conclusion
In summary, you do not have to report the interest earned on your HISA when filing your taxes, as long as the funds are used for qualified medical expenses. However, if you withdraw funds for non-qualified expenses, you will need to report the interest as taxable income. It is always a good idea to consult with a tax professional or financial advisor to ensure that you are in compliance with tax laws and regulations.
