CPA Exam — REG (Regulation)Federal Taxation of IndividualsMedium
A taxpayer contributes $3,000 to a Health Savings Account (HSA) in 2023. They are covered by a high-deductible health plan (HDHP) and are age 40. What is the maximum amount of this contribution that is deductible as an 'above-the-line' deduction?
- A$3,850
- B$0
- C$7,750
- D$3,000
Show answer & explanationAnswer & explanation
Correct answer: D. $3,000
For 2023, the maximum HSA contribution for an individual with self-only HDHP coverage is $3,850. Since the taxpayer contributed $3,000, which is less than the maximum, the full $3,000 is deductible as an 'above-the-line' deduction.
Why the other options are wrong
- A. This is the maximum individual contribution limit for 2023, but the taxpayer only contributed $3,000.
- B. This option is incorrect as HSA contributions are generally deductible.
- C. This is the maximum family contribution limit for 2023, not applicable to a single taxpayer.
HSA Contribution Deduction
Contributions made to a Health Savings Account (HSA) by an eligible individual are deductible 'above-the-line' (an adjustment to income), up to annual limits, and funds grow tax-free.
- Must be covered by a High-Deductible Health Plan (HDHP).
- Annual contribution limits apply ($3,850 self-only, $7,750 family in 2023).
- Catch-up contributions ($1,000) allowed for those age 55 or older.
Memory trick: HSA deductions are for 'Healthy Savings' with a high deductible.