Question

All of the following are true regarding health savings accounts (hsas) except:

a. hsa funds can be invested.
b. contributions made to the hsa by the plan participant are tax-deductible as an adjustment to gross income (above-the-line).
c. if an employer makes contributions to an hsa on behalf of an employee, the employer contributions are included in the taxable income of the employee.
d. to be eligible to make hsa contributions, an individual must be covered by a high deductible health insurance plan.

Answer 1

The incorrect statement about HSAs is that employer contributions are included in the employee's taxable income; in truth, they are excluded.

Step-by-step explanation:

The statement about Health Savings Accounts (HSAs) that is not true is c. if an employer makes contributions to an HSA on behalf of an employee, the employer contributions are included in the taxable income of the employee. This is incorrect because employer contributions to an employee's HSA are actually excludable from the employee's gross income and are not subject to federal income tax, Social Security, or Medicare taxes.

Health Savings Accounts are accounts set up to help individuals save for future medical expenses and are paired with a high-deductible health plan. They have a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and distributions for qualified medical expenses are also tax-free. In addition, HSA funds can indeed be invested, offering the potential for growth through investment earnings, similar to retirement accounts like 401(k)s or IRAs. Contributions made by the individual to an HSA are tax-deductible, thus reducing their taxable income. These tax advantages make HSAs a valuable tool for medical savings and future financial planning.