I'll start with my understanding of Health Savings Accounts and the tax deductions for them and medical expenses. Correct me if I'm wrong:
- Contributions to an HSA are tax deductible
- The contribution limit for an HSA is $3450 for an individual (employer + employee)
- I can contribute whenever I want with a transfer from another bank account
- I can use the funds for medical expenses for any immediate family member
- Only medical expenses in excess of 7.5% of AGI (and not paid for from HSA) are tax deductible
So, if a member of my family has an unusually high medical expense for the year which will exceed the out of pocket maximum for the plan which covers them, can I funnel the funds to pay the bill through my HSA (up to the limit for the HSA) and essentially make that portion of the bill tax-deductible? The out of pocket max for their plan is less than 7.5% of our AGI so no portion of the bill would be tax deductible that way.
The HSA is new this year so there is not much saved in it. So I would be essentially maxing out the contribution limit with a deposit and then using the funds nearly right away to pay the medical bill.
This seems like a nice little "loop-hole" which can be used to make expenses less than 7.5% of AGI tax deductible while also not requiring me to really use the HSA as a savings account (the money would go in and right back out). If our effective tax rate is around 15%, we could save around $500.
Am I missing anything?