ExpertMedium1 markMultiple Choice
CPA · Question 45 · Area I: Individual Compliance and Planning
A taxpayer has a Health Savings Account (HSA). In Year 1, they contribute $4,000 (the maximum allowed for self-only coverage is stated as $4,150 in the scenario). The taxpayer's employer also contributes $1,000. What is the tax impact?
A taxpayer has a Health Savings Account (HSA). In Year 1, they contribute $4,000 (the maximum allowed for self-only coverage is stated as $4,150 in the scenario). The taxpayer's employer also contributes $1,000. What is the tax impact?
Answer options:
A.
Taxpayer deducts $4,000.
B.
Taxpayer deducts $3,150.
C.
Taxpayer deducts $3,150; Excess contribution of $850 must be withdrawn.
D.
Taxpayer deducts $4,150.
How to approach this question
1. Identify Limit ($4,150). 2. Subtract Employer Contribution ($1,000). 3. Allowable Taxpayer Deduction ($3,150). 4. Identify Excess ($4,000 - $3,150 = $850).
Full Answer
C.Taxpayer deducts $3,150; Excess contribution of $850 must be withdrawn.✓ Correct
C
IRC §223. The total contribution limit is $4,150. Employer contributions count towards this limit. $4,150 - $1,000 = $3,150 max deductible contribution for the taxpayer. The $4,000 contribution results in an excess of $850.
Common mistakes
Ignoring employer contribution; deducting the full amount contributed.
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