🎯Health Savings Account (HSA): 12 MCQ

Responses

1. 

   Angela Parker 11 June 2024

   Question 2 on this quiz is more about alimony and has no mention of HSA. Is the question in the wrong quiz?

   1. 

      Maroun, CPA 14 June 2024

      Hello Angela,

      I transferred the question to the “Alimony & Child Support” quiz.
      Thank you for pointing this out!

2. 

   Vinny D 24 October 2024

   Dear support,

   Shouldn’t the answer to this MCQ be ” Karen may deduct $3,800 as an above-the-line deduction for AGI and may include $2,500 in her itemized medical expense deduction.”? The video lesson by Farhat states that qualified medical expenses, including insurance premiums, are itemized deductions from AGI.

   1. 

      Maroun, CPA 28 October 2024

      Hello Vinny,

      Thank you for your question, and I appreciate your attention to detail.
      The reason Karen’s $2,500 premium expense for high-deductible health insurance is treated as an above-the-line deduction (adjustment to income) rather than an itemized deduction is that she is self-employed. Let me explain the distinction clearly.

      For self-employed individuals, the Self-Employed Health Insurance Deduction allows them to deduct health insurance premiums directly from their gross income as an above-the-line deduction. This is reported on Schedule 1 (Form 1040), Part II, Line 17. The primary purpose of this adjustment is to provide parity between employees (who may get health insurance as a tax-free fringe benefit) and self-employed individuals, who purchase their own insurance.

      Because it’s treated as an adjustment to income, this deduction lowers adjusted gross income (AGI), which benefits the taxpayer by reducing the overall taxable income. It also makes Karen eligible for other tax benefits tied to a lower AGI.

      Itemized deductions, on the other hand, are reported on Schedule A (Form 1040) and can only be used if the taxpayer’s total itemized deductions exceed the standard deduction. Medical expenses, including premiums, are usually treated as itemized deductions. However, for most taxpayers, medical expenses are only deductible to the extent they exceed 7.5% of AGI, which makes it difficult to benefit fully from this deduction. Since Karen is self-employed, her health insurance premiums bypass this limitation and are deducted directly above the line, giving her a more immediate and favorable tax benefit.

      Therefore, Karen’s $2,500 premium is not included in itemized deductions but is instead deducted above the line. Similarly, her $3,800 HSA contribution also qualifies as an above-the-line deduction, further reducing her AGI. The total above-the-line deduction amounts to $6,300.

      I hope this explanation clarifies the reasoning. Please let me know if you have further questions!

3. 

   Geetha Gowda 23 February 2025

   Are we not considering HSA and HDHP limit?

   1. 

      Maroun, CPA 26 February 2025

      Hello Geetha,

      It is considered. As mentioned in the explanation: “Since Karen contributed $3,800, which is below the maximum allowable limit of $8,300 for family coverage in 2024, the entire amount is deductible.”

      Let me know if you have additional questions!