When you’re evaluating health care options for a new job, the employer may offer some choices beyond the type of health insurance you choose. Choosing a plan that’s compatible with a health savings account (HSA) or a flexible spending account (FSA) is a great way to maximize your benefit plan. And with these accounts, you can reduce your tax liability while you save for expected medical expenses. An HSA and an FSA are similar because funds from your paycheck or directly from your employer can be deposited into these accounts on a pretax basis. Using a debit card tied to the account, you can spend this money on qualified expenses like prescription medication and prescription eyewear, as well as out-of-pocket costs under your health coverage, like deductibles, copays, and coinsurance. Choosing an HSA or FSA can be a great way to take charge of your medical expenses. In this article, we’ll explain and compare the following aspects of health savings accounts and flexible spending accounts:
An HSA is a financial account that you can fund with pretax contributions from your paycheck or after-tax contributions that are tax-deductible. You can use funds in your HSA to pay for qualified medical expenses now or in the future, even if you change jobs or retire. In other words, you own your HSA. What are eligibility requirements for an HSA? To be eligible for an HSA, you must have a high deductible health plan (HDHP), which has to be your only health insurance plan (the IRS states specific exceptions for this rule, including coverage for specific diseases or illnesses, accidents, and disabilities). You can’t be enrolled in Medicare, and you can’t be able to be claimed as a dependent on anyone’s tax return. For 2019, your health plan must have an out-of-pocket maximum of $6,750 (individual coverage) or $13,500 (family coverage) and a deductible of at least $1,350 (individual) or $2,700 (family). Not all plans with these deductibles are HSA-qualified, though, so be sure to check with your health plan or employer. You don’t have to get your health plan from an employer in order to have an HSA. If you’re self-employed, you can buy an individual HDHP and contribute to an HSA too. What are the advantages of an HSA?
HSA contribution limits can change yearly. Here are the annual limits for 2019:
What are qualified expenses? The funds in an HSA can be spent only on certain expenses. The IRS provides a document with a detailed list, Publication 502, Medical and Dental Expenses, but here are some examples:
What is a Flexible spending account (FSA)?An FSA is a financial account that employees can fund with pretax contributions. You can use the funds in your FSA to pay for qualified medical or dependent-care expenses. An FSA is owned by your employer, and if you don’t spend the money by the end of the plan year, it remains with your employer, with certain limited exceptions. What are eligibility requirements for an FSA?To open an FSA, your employer has to establish it for your workplace. Unlike an HSA, there are no health plan coverage requirements for an FSA, making it possible for employees to enroll in an FSA even if they don’t have health coverage through their employer. If you’re self-employed, you can’t open an FSA. What are the advantages of an FSA?
What are the disadvantages of an FSA?
What happens with my FSA funds at the end of the year? Your employer decides if you can keep some or all of your unused FSA funds at the end of the year. There are 3 options for the employer to choose from, and the employer makes their selection before the beginning of the plan year.
What are the annual contribution limits for an FSA? FSA contribution limits can change yearly. For 2019, you can elect contributions of up to $2,700 to your FSA, which is lower than the maximum HSA contribution. You must choose the amount at the beginning of the year. However, if you have a family status change such as marriage, divorce, or the birth of a child, you can change your election at that time. What are qualified expenses? The funds in an FSA, like with an HSA, can be spent only on certain expenses. These include:
The same goes for grown children on your insurance plan who will be 27 years of age or younger when the plan year ends, even if you don’t claim them as dependents. Additional dependent care expenses can be covered by a dependent care FSA (DCFSA). This is another type of FSA, and it can be used to help pay for eligible dependent care services, including child and adult daycare, preschool, or summer day camp. For additional details, see IRS Publication 503, Child and Dependent Care Expenses. To receive reimbursements (or distributions) for qualified expenses from an FSA, you’ll need to provide a written statement detailing the expense from an independent third party plus an additional written statement stating that the expense isn’t being covered or reimbursed by another plan. You don’t need to report FSA distributions to the IRS. If the end of the plan year approaches and you still have remaining funds left to use, there are online stores that exclusively sell FSA-eligible items. What are the differences between HSA and FSA accounts? This chart provides a simple comparison between HSAs and FSAs, based on some of the key components of these accounts. Other ways to save on health care expenses
In addition to saving money for medical expenses with an HSA or FSA, there are also smart ways to reduce those expenses.
The tax references in this article relate to federal income tax only. Consult with a qualified professional for tax, investment, or legal advice. Source
0 Comments
Your comment will be posted after it is approved.
Leave a Reply. |
Archives
April 2020
Categories
All
|