Unless you are in a tax situation where you qualify for earned income credit
, lowering your taxable income will reduce your taxes. Since your contribution is deducted from your taxable income, spending money out of your HSA won't affect your taxes unless you spend the money for something other than legitimate medical expenses in which case that money would become taxable and you would may incur a penalty as well (depending on the reasons and the situation).
There are only two situations in which higher taxable income can help you. If you receive child
tax credit and you don't owe enough taxes to use up the entire child tax credit, then you have to earn at least $3000 to receive the additional child tax credit as a refundable credit. Or, if you can qualify for the earned income tax credit, the income
versus the amount of earned income credit is a parabolic curve. Up to a certain income level, the more money a taxpayer earns, the greater amount of earned income credit they can receive. For each filing status and number of children, there is an income level at which the earned income credit maximizes and then begins decreasing with additional earned income. If a taxpayer is on the increasing side of the income curve, then having more taxable income may result in receiving more money through the earned income credit.
Based on your question, it sounds as if you won't be affected by either of these situations. If you might be affected by the earned income credit situation, then if you tell me your filing status (single, head of household
, qualifying widow(er), married filing jointly
or married filing separately
) and the number of dependent
children you have (three children are the maximum that can be used for earned income credit); then I can tell you at what income the curve peaks and then increased taxable income results in lower earned income credit. Also, if your filing status happens to be married filing separately, then you can't qualify for the earned income credit, so changes in your taxable income won't make any difference.
The IRS still hasn't released all of the tax forms
in their final form yet. The HSA form is Form 8889 and as far as I can tell from the IRS website, they have released that form for use. It will probably be worth your time to call your H&R Block office and make sure that form is ready for use, before you have your taxes done, if you are going to have them prepared soon. That way, you won't start doing your taxes only to find out that you have to go in a second time because their computers can't use that form yet.
The "fiscal cliff" negotiations left the IRS holding the bag for making the last minute changes to their forms and instructions after the tax laws
were finalized. As a result, the IRS won't accept returns until January 30 (they are trickling a few in for test purposes, but most returns won't be accepted by the IRS until the 30th). Also, the information we have received from the IRS is to expect your refund at least 21 days after they accept your return. Some people's refunds will probably go out earlier, but you can't count on getting a refund until Feb. 21st or later, even if you have your tax return prepared and waiting on H&R Block's computer by the 30th.
Again, if you want more information, just ask. I'll be happy to look up the earned income credit if you would like. I will be signing off for the night pretty soon, so if I don't get back to you tonight, I will reply in the morning.