Do I Report My HSA Account on the FAFSA?
This question relates to the FAFSA’s parent assets.
No — You do not report your Health Savings Account (HSA) balance as an asset on the Free Application for Federal Student Aid (FAFSA).
Health savings accounts can be confusing during financial aid season. Families often wonder whether funds in their HSA (set aside for medical expenses) should be included as an asset when applying for federal student aid.
The US Department of Education has issued clear guidance on this matter: The balance in an HSA is noI mentioned As an asset on the FAFSA, though, some contributions are considered non-taxable income.
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What the FSA guide says
According to 2022–23 Federal Student Aid Guide(PDF file) Under “Non-taxable income”:
(H).Health Savings Accounts (HSAs)
They are more like tax-deferred retirement and savings plans than flexible spending arrangements. For example, the balance in a health savings account continues from year to year, while the balance in a flexible spending arrangement must be spent on eligible expenses by the end of the year. Therefore, treat tax-deductible contributions to an HSA as non-taxable income; These will appear on Line 12 of Schedule 1 of Form 1040. The balance in the account is not counted as an asset, and distributions from it are not counted as nontaxable income when used for qualified medical expenses. Distributions not used for qualified expenses are subject to income tax (and a potential penalty) and will be counted in adjusted gross income.
This means that when you fill out the FAFSA, you must skip your entire HSA balance. It is not included in calculating assets that could affect your Student Aid Index (SAI).
How are HSA contributions handled?
Even though the account balance is not reported, contributions to your HSA can still appear on your FAFSA as Non-taxable income. These contributions appear on Line 12 of Table 1 On your IRS Form 1040. When the FAFSA pulls tax statements, this line is included in calculating your gross non-taxable income.
So, while you don’t have to worry about reporting the balance, you should be aware that contributions may slightly increase your income figure used for financial aid purposes.
What about HSA withdrawals
HSA withdrawals also depend on how you use the funds. If you use the funds for qualified medical expenses, these distributions are not taxable and do not need to be reported anywhere on the FAFSA. They are treated the same way as other tax-deductible medical costs.
However, if you withdraw funds for non-medical reasons, this amount becomes taxable income. Because your FAFSA reflects the numbers on your tax return, these non-qualifying withdrawals can indirectly reduce your eligibility for aid by raising your adjusted gross income (AGI).
People ask too
Should I include my HSA balance when filling out the FAFSA form?
No, do not report your HSA balance as an asset on the FAFSA.
Are HSA contributions reported as income or assets on the FAFSA?
HSA contributions will be reported as non-taxable income on the FAFSA.
Will HSA withdrawals affect my financial aid eligibility?
Generally not, but if you use your HSA for nonqualified expenses, it will be considered income and will be reported on the FAFSA as well.
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Editor: Colin Greaves
The post Are You Reporting Your HSA on the FAFSA? appeared first on The College Investor.
