How could I get exemption on medical expenses under Income Tax? I have HSA account also.?

Question

I have opened my HSA account starting Jan 2006 but didn't deposited any money into that account. I have spend all medical expenditure from my own pockat.
How could I get this expensed exmpted from Income Tax?

Answer 1

This is the stupid way of doing this (because you don't get any chance for tax deferred earnings):

Go fund your HSA for 2007, subject to any yearly contribution limits. This can be done through April 15 and will give you a deduction on the front of your tax return for the contribution (making it pretax).

Figure out how much you've spent in qualified medical expenses that have not been reimbursed by any other plan nor taken on a schedule A as an itemized deduction in any tax year. Any expense incurred since you OPENED the HSA can be used. (Yes, this is mentioned in IRS publication 969.) Expenses do not have to be from the current tax year.

Then ask for a distribution to reimburse yourself. Be sure to file the form 8889 for any year with a contribution and any year with a distribution. If you simply reimburse yourself, you will not trigger taxable income.

(You cannot, however, incur medical expenses first and then open an HSA to get a tax deduction. Plus if audited, you need to be able to show that you didn't claim the expenses on any other tax year!)

Answer 2

You'd have to itemize deductions to get an benefit from them. Medical expenses are subject to a 7.5% AGI limitation so only the expenses that exceed 7.5% of your AGI are deductible. Additionally your total itemized deductions must exceed the standard deduction amount for your filing status before it makes any sense to itemize.

Without all of the details on your tax situation and the amount of the medical expenses there's no way to say what benefit you'd get, if any.

Since you didn't fund the HSA, it's useless to you. And unless you're uninsured or have high deductible limit health insurance it won't be any value to you in the future whether you fund it or not.