October 23, 2018|
The Affordable Care Act continues to be questioned regarding the uncertainty of how it will impact health care costs. Therefore, having an understanding of HSAs, FSAs and HRAs is crucial in order to discover all of the tax-advantage ways to fund these expenses. Here are the basics on how to make sense of these 3 health care accounts.
Those covered by an eligible high-deductible health plan (HDHP), can contribute pre-tax income to an employer-sponsored Health Savings Account, or can make deduct-ible contributions to an HSA set up by the individual. In 2018, up to $3,450 can be saved for self-only coverage and $6,900 for family coverage. Also, if you are 55 years or older, you may contribute an extra $1,000.
The individual owns the account which can produce interest or be invested. This account grows tax-deferred, similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and the balance can be carried over each year.
Whether or not you have an HDHP, your pretax income can be redirected to an employer-sponsored Flexible Spending Account. The limit is determined by your employer, but in 2018 the amount cannot exceed $2,650. The plan can pay or reimburse you for any qualified medical expenses.
You usually lose whatever amount you don’t use by the end of the plan’s year. However, your plan may allow you to roll over up to $500 to the next year. Your plan may also give you a time extension of two and a half months to acquire expenses and use up the previous year’s contribution. Your FSA is restricted to funding certain “permitted” expenses if you also have an HSA.
A Health Reimbursement Account is an employer-sponsored account that reimburses you for medical expenses. A HRA differs from an HSA because no HDHP is required. With a HRA, any unused amount can usually be carried over to the next year, unlike with FSA amounts.
Employees aren’t allowed to contribute to an HRA, only employers can.
Maximize the benefit
If you have one of these health care accounts, it is important to have a basic understanding of them so you can take advantage of their complete benefits. However, tax-advantaged accounts aren’t the only way to save taxes dealing with health care. Contact your Faw Casson representative if you have any questions about tax planning and health care expenses.