Healthcare Savings Accounts
Healthcare Savings Accounts (HSA’s) are created for individuals who want to save for medical expenses that high-deductible health plans do not cover. While the primary objective of HSA’s is to ensure that people save to meet future healthcare related expenses, but the big attraction is the savings on Federal taxes that comes with these accounts.
Are you Eligible for a Healthcare Savings Account?
You can open an HSA if:
1) You have a high deductible health plan from a health insurance provider i.e. a minimum deductible of $ 1,200 per year if you are single or $2,400 for family coverage.
2) You are not covered under Medicare and are not a dependent on someone else’s return.
Once You are Eligable for a Healthcare Savings Account
Once you determine that you are eligible, you can set this account up in many ways.
If your employer doesn’t offer a Healthcare Savings Plan you can set up your own seperate account.
Independant Healthcare Savings Account Providers
Many large banks provide this type of account as a part of their offerings. You can also choose an insurance company as your service provider. For singles, the cap on contribution is $ 3,100 while for family coverage, the upper limit for contribution is $ 6,250. If your employer is providing this benefit, you should ensure that the total contribution into the HSA is within the defined limits. Excess contribution invites 6% excise tax.
Most of the service providers will provide you with a debit card and/or checkbooks. This account works pretty much like a checking account. However, you should remember that only healthcare related expenses should be paid for using the funds in this account. If you use this for other purposes besides medical expenses, they would need to be reported when you file your tax returns. Such ‘other expenses’ are disallowed and will qualify as income.
Key benefits of an HSA:
The funds in this account can be used to pay for Over the Counter medicine (if accompanied by prescription), dental and vision checkups and treatments. The contributions to this account can be used for deductions from income without the need for itemization. The earnings from this account are also exempt from income tax. However, please note that medical expenses paid for from HSA cannot be itemized for claiming exemption when you file your tax returns with the government. A big advantage of this account is that the funds do not lapse at the end of the year, as is the case with Flexible Spending Accounts (FSAs). Therefore, it helps to build a corpus to meet healthcare related expenses at a later date. And without resorting to itemization, you can deduct contributions to HSA as an above the line tax deduction. You need to report the total contributions (self and employer) on Form 1040. See IRS Publication 969 on HSA’s
The Health savings account is one of the often overlooked provisions that help you save on tax while simultaneously allowing you to save for healthcare related expenses. While quite a few employers provide this benefit and tie up with service providers to administer these accounts, as an individual you can set up an account for yourself and still enjoy the benefits.
Christopher is a writing freak, a guest blogger, professional and a loving dad. He writes for creating awareness about investment and savings. He has also received recognition as a top writer on Isarates.org.uk. Apart from this he takes keen interest in sport activities like horseback riding and swimming.
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