The HSA Report Card


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How to Stack Credit Card Rewards with HSA Tax Savings

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Healthcare costs within the United States can seem daunting when you are faced with a high medical expense on the horizon, but combining sign up bonuses and rewards programs from credit cards with a Health Savings Account (HSA) can drastically reduce the financial impact of medical expenses. Contributions to an HSA can save you from paying federal, state and payroll taxes. On top of that, HSA funds can be withdrawn tax-free for qualified medical expenses. These tax savings properties of HSAs can save you a substantial amount of money when it comes to paying for medical expenses.

One way to further increase your medical expense savings is to pay for your medical expenses with a credit card. Many credit cards offer generous sign up bonuses and generous rewards if certain spend requirements are met. When properly utilized this can boost the amount of money you are saving simply by taking advantage of sign up bonuses and rewards offered by many credit card companies, which often come in the form of cashback, travel miles or gift cards. When utilizing an HSA with a credit card you are able to take advantage of a sign up bonus, tax benefits, and cashback rewards. Below we outline the steps to successfully employ this strategy.

The first step is to identify a large medical expense on the horizon whether it be the birth of a child, surgery, braces, or laser eye surgery.
Next, reasearch and sign up for a credit card with generous rewards. When I was reviewing a list of top credit cards from, I was drawn to the Chase Sapphire Preferred Card which grants an extra 50,000 bonus points after you spend $4,000 on purchases within the first 3 months, which equates to $625 toward travel. If you are someone who travels frequently or are planning a trip in the near future this would be a fantastic way to earn money towards that trip while simply paying off your medical expenses. This card is just one example of the many offers that are available. When researching websites like Nerdwallet or Magnify Money, you can find various promotional cards with a range of rewards. Whether you want to take advantage of travel rewards, or would prefer cash rewards, you are likely to find multiple cards that would allow you to take advantage of these savings. What you want to look for are promotional rates that match your planned medical expenses.
The third step is to pay for the medical bill with the credit card and meet the minimum spend within the stipulated time frame to earn the rewards. In the example above, the minimum spend is $4,000 within the first three months of activating the credit card.
Pay off your credit card with reimbursed HSA funds. You never want to over extend yourself and charge more on credit cards than you can afford to pay off. You will only be truly saving money and taking advantage of the stacked savings if you are able to pay off the credit card balance in full in a timely manner.
Remember to keep all your receipts just in the case the IRS comes knocking on the door. It's very important that you keep accurate records to document the transactions, in case you are audited.

To expand on the example earlier, if you paid for $4,000 worth of qualified medical expenses directly with the Chase Sapphire Preferred Card, and then paid the balance in full with reimbursed HSA funds, you would be looking at some significant savings. Let’s look at the numbers.

Federal Income Tax Savings
24% Tax bracket
State Income Tax Savings
5% Marginal State Tax bracket
FICA Tax Savings
7.65% (Payroll Contributions)
Card Savings
Cash Back or Travel Rewards
Total Savings
Fed, State, Payroll & CC Rewards Savings

$2,091 is a lot to save against $4,000 worth of expenses. In fact, that is 52% savings on the original $4,000 medical expenses. No matter which way you slice it, it is rare to find over 50% savings in anything, especially when it comes to medical expenses.

Noe Padilla