Healthcare expenses are on what appears to be a ceaseless climb despite the so-called “Affordable Care Act.” As a cost saving measure, it is important to utilize tax deductions where available. Many of us are familiar with pre-tax health insurance premiums; however the Health Savings Account (HSA) account remains somewhat of an unknown.

Employees and self-employed “employee-shareholders” of an S-Corporation, receive significant tax benefits by funding health care expenses on a pre-tax basis. When health insurance is paid through a payroll deduction, the employee avoids both income tax and FICA (Social Security and Medicare) taxes on these premiums.

In 2004 an additional tax savings option called a Health Savings Account was introduced. The HSA allows an individual with a High Deductible Health Plan (HDHP), to put away funds in addition to the insurance premiums, on a pre-tax basis for future qualifying medical expenses. These additional funds receive the same tax benefits as the health insurance premiums (i.e. avoidance of Income and FICA taxes), and are added to a personal account, the “HSA,” to use for all future medical expenses. As HDHP’s are generally cheaper than ordinary health plans, the combination of the reduced premiums with the additional pre-tax funds creates significant savings.

The HSA offers a maximum pre-tax contribution of $6,900 in 2018 and unlike other special accounts, these funds rollover from year to year with no limitations. This means that one can put in the maximum amount every year and carry the balance forward until they have a medical need for these funds.

For a families in the middle income range, using an HDHP for the parents (children should be eligible for NJ Family Care) with an HSA, offers reduced insurance rates and the tax savings from the HSA deposits. The savings can easily reach several thousand dollars a year.