29 Mar How will these medical expenses affect my tax return?

Q. I paid for a medical expense out-of-pocket in 2020 and did not use my health savings account (HSA) to pay for it initially. In 2021, I then used my HSA to reimburse myself for that medical expense. I took the New Jersey medical expense deduction for that expense on my 2020 taxes. Also, since I performed an HSA distribution to reimburse myself for that medical expense in 2021, will it affect my 2021 New Jersey taxes?
— Taxpayer

A. Good question.

It will not affect your 2021 income because you took your medical deduction in 2020.

The fact that you were reimbursed from your HSA in 2021 for your 2020 medical expenses does not give you a deduction in 2021, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

This is because HSA is treated as pre-tax for federal purposes, and after-tax for New Jersey purposes, he said.

“If you have an HSA from your employer, your W2 will show that your New Jersey wages are more than your federal wages and the HSA account is one of the reasons for this difference,” Maye said. “If you individually fund your HSA, you deducted the amount on your federal return and not the New Jersey return.”

Be careful not to deduct the medical expenses again in 2021, Maye said, because many tax preparation software programs will automatically deduct your HSA distributions as a medical deduction on your New Jersey return.

Email your questions to .

This story was originally published on March 29, 2022.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.