There is still much uncertainty about the Affordable Care Act and how such a change will impact health care costs. So, to fund these expenses—including FSAs, HRAs, and HSAs—it’s important to leverage all tax-advantaged ways. Here’s how to clear up these confusing healthcare accounts.
If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored Health Savings Account (HSA) up to $3,450 for self-only coverage and $6,900 for family coverage for 2018 or make deductible contributions to an HSA you set up yourself. Plus, you may contribute an additional $1,000 if you are age 55 or older.
You own the account, which can allow interest or be invested, growing tax-deferred like an IRA. You can carry over a balance from year to year and withdrawals for qualified medical expenses are tax-free.
Regardless of whether you have an HDHP, so long as you do not exceed $2,650 in 2018 you can redirect pretax income to an employer-sponsored Flexible Spending Account up to an employer-determined limit. The plan reimburses or pays you for qualified medical expenses.
What you do not use by the plan year’s end, you usually lose. Though your plan might let you roll over up to $500 to the next year, it may give you a grace period of two and a half months to incur expenses to use up the previous year’s contribution. Your FSA is limited to funding certain “permitted” costs if you have an HSA.
A Health Reimbursement Account is employer-sponsored and reimburses you for medical expenses. No HDHP is required, unlike an HSA. Unlike an FSA, any remaining portion usually carries forward to the next year.
There’s no government-set limit on HRA contributions. However, employees aren’t allowed to contribute; only your employer can contribute to an HRA.
Maximize the benefit
It is essential to understand the applicable rules if you have one of these healthcare accounts. That way you can get the maximum benefit from it. However, tax-advantaged accounts are not the only way to save taxes relative to health care. Contact us if you have questions about tax planning and health care expenses.
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Ben R Shull CPA LLC provides clients with tax, transaction, and advisory services. The insights and quality services we deliver help lead our clients through the next generation of changes, and accelerate growth while reducing risk. CPA Katy, TX.