Question

Matilda works for a company with 1,000 employees. The company has a hospitalization insurance plan that covers all employees. However, the employee must pay the first $3,000 of his or her medical expenses each year. Each year, the employer contributes $1,500 to each employee's health savings account (HSA). Matilda's employer made the contributions in 2018 and 2019, and the account earned $100 interest in 2019. At the end of 2019, Matilda withdrew $3,100 from the account to pay the deductible portion of her medical expenses for the year and other medical expenses not covered by the hospitalization insurance policy. As a result, Matilda must include in her 2019 gross income:

A. $0.
B. $100.
C. $1,600.
D. $3,100.
E. None of these.

Answer 1

Matilda does not need to include anything in her 2019 gross income since she withdrew the same amount that was contributed to her health savings account and earned as interest.

Step-by-step explanation:

To determine the amount that Matilda must include in her 2019 gross income, we need to calculate the total contributions to her health savings account (HSA) and any interest earned, and subtract the amount she withdrew to pay for medical expenses.

In 2018, Matilda's employer contributed $1,500 to her HSA. In 2019, the employer again contributed $1,500, and the account earned $100 in interest. Therefore, the total contributions and interest are $1,500 + $1,500 + $100 = $3,100.

However, Matilda withdrew $3,100 from the account to pay for her medical expenses. Since this equals the total contributions and interest, Matilda does not need to include anything in her 2019 gross income.