Did You Forget to Report Your HSA Distributions?

As the summer heats up, many taxpayers will begin to receive notices from the Internal Revenue Service (IRS) that they owe money for unreported income.  One of those unreported items may be distributions made from a Health Savings Account (HSA).  This is a common item that is missed by taxpayers when filing their income tax returns.  

While HSAs are a great option for individuals to save funds for qualified medical expenses, distributions that are taken must be reported each year on their individual income tax return (Form 1040).  The HSA administrator, usually a bank, issues a form 1099-SA reporting the amount distributed from the HSA.  If these funds were used for qualified medical purposes, the distributions are tax-free.  

Unfortunately, if a taxpayer does not report the distribution on their 1040, the IRS will eventually notice the missing information and default the distribution as being taxable.  This results in the IRS mailing the taxpayer a notice letter stating that they underreported their income for the tax year at issue along, with a tax due on the amount.

Most taxpayers utilize the distributions for medical expenses and their 1040 will need to be amended for the year in question to remove the additional tax.

If you have any questions relating to tax planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances. 

Don't Be Shocked Next Tax Season, Review Your Tax Withholdings Now

The Tax Law and Jobs Act was passed at the end of 2017 that resulted in a number of changes in the tax code taking place starting in 2018.  Many of those adjustments created a pleasant surprise to W-2 employees. Paychecks were a little higher due to the lower tax brackets and the resulting tax withholding calculations. 

What might be more of shock to some of those employees is the tax liability they may owe when they file their taxes next year.  This is due to the fact that the withholding calculator that many employers use in determining what should be withheld for federal income taxes is based on the exemptions taken when you file your W-4 with your employer.  As our tax laws have been fairly consistent over the past three decades, individuals who see a fairly consistent income from year to year can usually expect their tax liability to be consistent. 

However, with the changes to the standard deduction and limitations on the state and local taxes, many individuals who previously itemized will no longer itemize going forward.  It is estimated that 90% of taxpayers will take the standard deduction in 2018.  

The other shift is that depending on the individuals withholding calculation, a taxpayer may see a savings in their total income tax but as their withholding was reduced each pay period, they end up with a large tax liability when they file their taxes. The result could be a fairly sizeable tax liability from the prior year.

To avoid this painful surprise next year, it is best to review your tax withholdings now so that you can adjust them and catch up on any shortage that is found. 

If you have any questions about tax planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258. 

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.