by Jean Miller | Accounting News, Healthcare, News, Tax, Tax Planning - Individual, Tax Preparation - Individual
Established in 2003, HSAs allow individuals with high-deductible health plans to pay for current healthcare expenses and save for future healthcare expenses on a tax-favored basis. Money is deposited pre-tax, it grows tax-free, and is distributed tax-free as long as the funds are used for qualified health care expenses. Aside from the obvious benefit of tax savings, below is a breakdown of advantages and disadvantages of HSAs to help you determine if it’s a good fit for you.
Advantages
- Most HSAs come with a debit card to make paying for prescriptions and other expenses easy. Bills can be paid over the phone with this debit card, and you can access cash at an ATM.
- Long lasting and portable. If you change health insurance plans, change jobs, or enter retirement, funds left in your HSA remain available for use. They can be used for qualified medical expenses and continue to grow tax free.
- Roll-over funds. Unlike FSAs (Flexible Spending Accounts), any money left in an HSA at the end of the year automatically rolls over to the next year.
- In addition to personal contributions to your HSA, your employer and anyone else may contribute, and the recipient of the contribution receives the tax deduction for the amount contributed.
Disadvantages
- High deductible requirement. Although you pay less in monthly premiums, you are responsible for all healthcare costs until the deductible is met.
- Unexpected healthcare expenses. It’s possible that healthcare costs could exceed your HSA savings.
- Savings ambition. The desire to save money versus the necessity for healthcare when you need it could set up an internal struggle.
- Recordkeeping. This time-consuming task is a necessity as you’ll have to keep receipts and prove that withdrawals were used for eligible healthcare expenses.
- Taxes and penalties. Withdrawing funds for non-qualified expenses before age 65 results in a 20 percent penalty and taxes owed; after age 65 you’ll pay taxes but no penalty.
- Fees. Some HSAs charge monthly maintenance or per-transaction fees, though typically not high. Sometimes if a certain minimum balance is maintained, these fees can be waived.
by Daniel Kittell | Accounting News, Healthcare, IRS, News
On the mind of many Americans in recent months is how our new President will alter the healthcare system. His promise throughout the campaign was that Obamacare would be “repealed and replaced” as quickly as possible. However, we all know the feeling when our time frame for getting things done doesn’t always work out, or how we envisioned a project would turn out isn’t often the final product either. Just last week, the House passed an initial bill that reconfigures the healthcare system as it is today; however, it still has to pass the Senate, and will likely go through many changes and amendments before being finally accepted into law. Although Trumpcare may not look exactly how President Trump imagined, nor has it “repealed and replaced” Obamacare as rapidly as he may have originally hoped, here are some key differences between his plan and our current system.
- Immediate repeal of the 3.8% net investment income tax, which taxes income from royalties, interest, rents, dividends, passive activities and gains for those with a gross income over $200,000.
- Immediate repeal of the individual mandate excise tax, or the tax owed if you did not have health insurance.
- Health savings account withdrawal penalties would drop from the 20% under Obamacare to what it was before, 10%. This penalty only occurs if you withdraw money from an HSA before 65 for non-medical expenses.
- Removal of the $2,500 cap on the amount of pre-tax funds allowed to be placed in a healthcare flexible spending account. Decisions to impose a cap or not would be left up to employers.
- Those with FSA’s or HSA’s would also be allowed again to utilize those pre-tax funds on over-the-counter meds.
- Lowers the rate for medical itemized deductions. If you were under 65, Obamacare only allowed deductions for medical expenses that exceeded 10% of your adjusted gross income, whereas Trumpcare would take it back down to the previous 7.5% of your adjusted gross income.
- While Trumpcare would eventually repeal the 0.9% additional Medicare surtax on those with gross incomes over $200,000, it would not do so until 2023, which is later than the first healthcare bill the House introduced.
For the time being, these are the tax adjustments in place, although these could presumably change once the bill works its way through the Senate. This version of Trumpcare certainly differs from the House’s first proposal, but Americans may see many months pass and many modifications occur before the healthcare system truly moves away from Obamacare.
If you have any questions, please feel free to contact me at [email protected].
Take a look at my article on a similar topic: “The New GOP Healthcare Plan and What That Means for You”.
