Top Off Your HSA Today and Lower Your Tax Bill (While There's Still Time)

If you haven't already contributed the full amount to your HSA for 2021, today is the last day to do so and reduce your taxes at the same time.

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Here's some good news for people who had a health savings account (HSA) (opens in new tab) last year – you can still contribute to the account if you haven't already maxed out your 2021 contributions. HSAs offer a tax-efficient way to pay for medical expenses, since employer contributions aren't including in your taxable income, earnings are tax-free, and distributions aren't taxed if you use them to pay qualified medical expenses. Plus, you might also qualify for a deduction (or larger deduction) on your 2021 tax return. Those are all good reasons to contribute as much as you can to your HSA for 2021.

But here's the catch — you only have until the end of the day today (April 18) to make this move. Each year, you have until the tax filing deadline to make HSA contributions for the previous calendar year. Most of the time, that deadline falls on April 15. However, this year, the tax filing due date was pushed back a few days – to April 18 – for most people due to the Emancipation Day holiday in Washington, D.C. So now today is the last day to contribute to an HSA for 2021…so you only have a few hours left to act!

(Note: The due date is April 19 for residents of Maine (opens in new tab) and Massachusetts (opens in new tab) because of the Patriot's Day holiday in those states.)

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HSA Contribution Limits for 2021

For 2021, you can contribute up to $3,600 to an HSA if you have self-only coverage. If you have family coverage, the max is $7,200. Anyone who was age 55 or older at the end of 2021 can put in an additional $1,000 in "catch up" contributions for the year. (For all the 2017 to 2022 contribution limits, see HSA Contribution Limits and Other Requirements.)

The contribution limits can be reduced, though. If your employer makes contributions to your HSA that are excludable from your income – including amounts contributed through a cafeteria plan – those contributions count against your overall limit. In that case, the amount you can contribute to your HSA is lower.

Excess HSA Contributions

If you haven't reached your limit, think about making a quick HSA contribution today if you have some extra income available. But don't go over your limit! There's a 6% penalty on excess contributions. And this penalty applies to each year the excess contribution remains in your account.

If you accidently put too much money in your HSA account for 2021, you can withdraw the excess amount and avoid the penalty if you:

  • Withdraw the excess before the end of the day today (tomorrow if you live in Maine or Massachusetts), or by October 17 if you request a tax filing extension; and
  • Withdraw any income earned on the withdrawn contributions and include the earnings in "Other income" on your 2021 tax return (i.e., report the earnings on Line 8e of Schedule 1 (Form 1040)).

If you don't withdraw your excess contributions, you may be able to claim a tax break for them down the road. Excess contributions from previous years that are still in your HSA account can be deducted, but the deduction is limited to the lesser of (1) your maximum HSA contribution limit for the year minus any amounts actually contributed for the year, or (2) the total excess contributions in your HSA at the beginning of the year.

Deduction for 2021 HSA Contributions

As mentioned above, you may be able to deduct your 2021 HSA contributions on your 2021 tax return (up to the maximum contribution limit). And it's an "above-the-line" deduction, so you don't have to itemize to claim this tax break. Instead, your contributions are reported as an adjustment to income on Line 13 of Schedule 1 (Form 1040). You need to submit Form 8889 (opens in new tab) with your tax return, too. So, it might be wise to put more money into your HSA for 2021 before today's deadline if you haven't already reached the contribution limit (before April 19 for residents of Maine and Massachusetts). That's especially true if you plan to contribution to the account soon anyway. That way, you'll get that extra deduction for 2021 and save more cap space for 2022 contributions.

There are some limitations, though. For instance, you can't deduct HSA contributions made by your employer, including pre-tax funds contributed through payroll deductions. You also can't claim the deduction if someone else can claim you as a dependent on their tax return. Distributions from an IRA that are contributed to your HSA in a direct trustee-to-trustee transfer are not deductible, either. Check the instructions (opens in new tab) for Form 8889 for all the rules.

If you already filed your 2021 tax return, you can file an amended tax return to claim a new or increased HSA deduction if you add more to your account today. You generally have three years from the date you filed your original return or two years from the date you paid any tax due to file an amended return (go with whichever date is later). We recommend e-filing your amended return, since it will be processed much faster. Once you file an amended return, you can track its status online using the IRS's "Where's My Amended Return?" tool or by calling 866-464-2050.

Rocky Mengle
Senior Tax Editor, Kiplinger.com

Rocky is a Senior Tax Editor for Kiplinger with more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, he worked for Wolters Kluwer Tax & Accounting and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals. He has also been quoted as an expert by USA Today, Forbes, U.S. News & World Report, Reuters, Accounting Today, and other media outlets. Rocky has a law degree from the University of Connecticut and a B.A. in History from Salisbury University.