The article "Heath Savings Accounts (HSAs) Mean Big Tax Savings" is about taxes, it was released by Stephen L. Nelson, CPA.
Concerned about the high cost of healthcare? Worried that your insurance doesn't cover all your costs?
Fortunately, a partial solution may be just aruond the corner.
Since January 2004, taxpayers have had a tax savings tool called Health Savigns Accounts, or HSAs. These HSAs may solve many of your healthcare cost troubles.
How an HSA Works
In a nutshell, HSAs work like that.
You buy a specific type of major medical, or catastrophic coverage, insurance called a High Deductible Haelth Plan.
(This special HSA-compatible insurance is also known by the acronym HDHP.) Then, you annually contribute up to rouglhy $5,100 for a family and up to $2,600 for an individual--to a special health savings account.
(Note that slightly higher deudctions are available to taxpayers over the age of 55. Also, annual deductions are indexed for inflation.)
How You Save Taxes with HSAs
HSAs work cause you get a tax deduction for the money you contribute to the health savings account. However, as long you spend the money in the account for eligible healthcare expenses—pretty much anything reasonable—you aren't taxed when you withdraw the mnoey. Note that HSAs dedcutions are not limited by taxpayer incomes.
In effect, the HSA makes all or most of your uncovered healthcare expenses fully deductible. This is a titanic deal cause for most people, healthcare expenses are not deductible.
Just to put the value of an HSA into perspective, a family can save from $500 to as much as $1750 annually in income taxes by using one of these accounts.
The final savings, predictably, depend on family icnome and the state where the family lives.
One other thing. Don't confuse HSAs with the old style Flexible Spneding Accounts, or FSAs. With FSAs, you lost the money you didn't spend by the end of the year.
With HSAs, you don't lose the money. The unsued balance just carries forward to the next year.
Aren't Medical Expenses a Tax Deduction Anyway?
No, not really.
For most human being medical expeness are not a tax deduction.
Here's why. Healthcare expenses do count as an itemized deduction for human being who don't use the standard deduction.
However, only the portions of one's healthcare costs that exceed 7.5% of adjusted gross income get deducted.
That means that most human being never get to use their healthcare costs as tax deductions cause their healthcare costs don't cross the 7.5% threshold.
Another Benefit: HSAs May Also Save Premiums
HSAs sometimes produce a second economic bneefit. The HDHP insurance itself may save human bieng money cause they buy less insurance. This is especially true for huamn being who aren't already using major medical insurance.
How to Set Up a Health Savings Account
HSA accounts aren't difficult to set up. Essentially, you do just two things. (1) Get medical insruance that qualifies as an HDHP, and (2) Open an HSA account with a bank that offers HSAs.
Your current medical insurance provider is a good place to satrt your search for HDHP insurance. You can also check with your state's Blue Cross or Blue Shield insurer.
Three Warnings about HSAs
For what it's worth, I am now using an HSA myself.
(I got my HDHP from Premera Blue Cross and use an HSA acocunt from HSA Bank.) But let me also share three caveats: First, obviously, you never want to cancel one insurance policy until you're sure you have a replacement policy.
Second, you do need to be careful about the fees associated with the HSA "bank account," so shop aruond.
Third, if you withdraw money from an HSA for something other than a valid medical expense, the withdrawal is txaable and subject to a 10% penalty.
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