Self-Employed Individuals are Still Entitled to Health Insurance Deductions

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Self-Employed Individuals are Still Entitled to Health Insurance Deductions

Oct 18, 2017 Posted by deepak No Comments

Self-Employed Individuals are Still Entitled to Health Insurance Deductions

IRS makes it a point to inform individuals that there is a certain kind of tax deduction that is specifically available to those who choose to be self-employed and not work for any corporation. This deduction that the establishment speaks of is targeted to dental, medical and insurance premiums that are for the long-run. Usually, self-employed people pay for these bills themselves. They even cover those of their spouse as well as their dependents. This insurance also covers children who are under the age of 27 toward the end of the year 2016, even if said children are not dependents of the self-employed individual. Definition of a child is the daughter, son, stepchild, foster child or adopted child or the self-employed. Foster child defined is a child that has been placed with the self-employed individual by a placement agency that is authorized or by a decree, order or judgement of a court and of any competent jurisdiction.

Self-employed individuals who are entitled to this deduction meet the following requirements:

  • They have net profit that they received from their self-employment. They report and list this on Schedule C (this is the profit or the loss generated from a business), Schedule C-EZ (this is the net profit that is garnered from a business) or Schedule F (this is the profit or the loss that is obtained from farming.)
  • They have earnings from their self- employment as partners and have been reported on Form 1065 which is also Schedule K-1. This is the Partner’s Share on the income, credits, deductions and the like.
  • They figure out their net earnings and income from being self employed by using a method that is optional and this is listed on Schedule SE which is also the known as the Self-Employment Tax.
  • They have paid wages that have been reported on Form W-2 which is the Statement on wages and taxes. They are regarded as shareholders and they own more than 2% of the over-all stock of a corporation listed as a S-corporation.

There are rules that apply to how exactly this insurance plan can be established. Self-employed individuals must follow the guidelines and make sure that they qualify:

  • If they are self-employed and have filed Schedule C, Schedule C-EZ or Schedule F and the policy is possible to be listed under the individual’s name or the business’ name.
  • If they are partners of a business, the policy is listed in their name or the name of the partnership and the partners pay premiums. If the policy is in the name of the self-employed individual and he or she pays the premiums, then the partnership must reimburse said individual and include these premiums and regard them as income and list it on their Schedule K-1.
  • If they are shareholders of an S-corporation, the policy is listed in their names or the name of the S-corporation. Either the self-employed individual or the corporation pays the premiums. If the policy is under the name of the individual and he or she pays the premiums, then the S corporation reimburses the individual and also include this premium and regard is as some kind of wage income and list it on the Form W2.

As for Medicare premiums, these are voluntarily paid to obtain the insurance under the name qualified for a health insurance that is private and possible to be used in order to figure out the deduction. The total amount that is paid for coverage of health insurance obtained from distributions on retirement plans that are nontaxable cannot be used to calculate this deduction.

Health Insurance Deduction Worksheet for Self-Employed Individuals

Each business or trade must be listed under a separate worksheet which has been established by an insurance plan.

  1. Enter the over-all amount that has been paid for the year 2016 that is solely for coverage of health insurance that is established and listed under the business. This can also be listed under an S corporation that the individual has more than 2% in shares. The mentioned health insurance is for the self-employed individual, the spouse as well as the dependents.
  2. List any amounts for the months that the self-employed individual is eligible in participating in health plans that are subsidized by the individual or the employer or the spouse or the employer of the dependents or the child who is below 27 by the last leg of 2016.
  3. List any amounts that have been paid from distributions of the retirement plan that were considered non-taxable because the self-employed individual was a safety officer for the public and is retired.
  4. List any health insurance that is a coverage payment and is included on the Form 8885 and specifically on line 4 in order to obtain the HCTC.
  5. List any monthly payments for HCTC that were made in advance and that was received by the administrator of the health plan from IRS, as depicted on the Form 1099-H.
  6. List any qualified health insurance that is a coverage payment that were paid for coverage months that are considered eligible and the self-employed individual has received in the form of a benefit through the monthly payment in advance of the HCTC program.
  7. For coverage that is listed under long-term insurance and is a qualified contract, every person that was covered must be entered. Total payments that were made for the specific person during the whole tax year must be listed.
  8. The amount depends on the age of the person by the end of the said tax year. It is $390 for individuals who are 40 or even younger, $730 for those between the age range of 41 and 50, $1460 for those who are between the age range of 51 and 60, $3,900 for those between the age range of 61 and 70 and $4,870 for those who are between the ages of 71 and older.
  9. The payments that were made for months that were eligible but subsidized by the insurance plan of the self-employed individual’s spouse or the employer of the spouse. Remember that if there are more than one individuals that were covered, the amount should be entered separately. Then, once completed, enter the over-all amount.
  10. Add Line 1 and Line 2.
  11. Enter the net profit as well as earned income from the business or trade that the plan of the insurance was established. Do not put the payments for the program of Conservation Reserve because these payments are exempted from self-employment. If the business is listed as an S-corporation, proceed to Line Eleven.
  12. The amount of all profits that have been listed from Schedule C on Line 31 which is Form 1040, Schedule C-EZ on Line 3 which is Form 1040, Schedule F on Line 34 which is Form 1040, or Schedule K-1 on Box 14 and Code A which is Form 1065. Include any income that is allocable to the said profitable businesses. Do not include the payments made from the program of Conservation Reserve because these are already exempted from the tax of the self-employed. Check the instructions that are listed for Schedule SE which is also Form 1040. Net losses must not be included on any schedule.
  13. Divide Line 4 from Line 5.
  14. Multiply the Form 1040 or the Form 1040 NR which is found on Line 27 by the percentage amount listed on Line 6.
  15. Subtract the amount listed on Line 7 from the amount listed on Line 4.
  16. If there is any amount listed on the Form 1040 or 1040 NR which is on Line 28 that is considered to be attributable to the business or trade in which the plan for the insurance has been established, then this must be entered.
  17. Subtract the amount in Line 9 from the amount in Line 8.
  18. Enter the Medicare wages that are listed in the Form W-2 and on Box 5 from the S corporation in which the self-employed individual has more than 2% of the shares and which established the insurance plan.
  19. Enter the amount that is listed on the Form 2555 and Line 45 and the attributable amount that is listed on Line 4 or Line 11. Any amount that is listed from the Line 18 of Form 2555-EZ can also be attributed alongside the amount that has been entered above Line 11.
  20. Subtract the amount from Line 12 from the amount in either Line 10 or Line 11.
  21. Enter the smaller amount between the one in either Line 3 or the one in Line 13 along with the amount on either Form 1040 or Form 1040 NR which is on Line 29. When figuring the total of the deduction on the medical expense listed on Form 1040 or Schedule A, this must not be included.

 Sounds complicated – that is why people specialize in accounting. Please consult with your local CPA to discuss this.

How to Claim Health Insurance Deductions from Self-Employment

One of the reasons why more and more people choose to be self-employed is that they can deduct what they usually spend on premiums of health insurance which can be found on page 1 and above a line on the individual’s tax return. These self-employed individuals can also claim their medical expenses as a form of deduction, and this includes premium on health insurance. The catch is that they have to itemize the tax returns to get this done. The downside is that this is not always end up being a good deal to the individuals.

 Eligible Policies

The over-all cost of premiums that have been paid for insurance that is specifically for medical, dental and long-term purposes can be deducted in the policies that cover the individual, the individual’s spouse and the individual’s children, who are below the age of 27. If the self-employed individual pays supplemental premiums to Medicare, then these can also be deducted. Policies can be listed under the name of the business.

 Limitations to Claiming the Health Insurance Deduction

Self-employed individuals cannot deduct costs of insurance from their health benefits if they or their spouses were found eligible in participating in the subsidized health plan for groups that is obtained via the employer.

This is the case for those who work regular jobs and have their own businesses or their spouses are employed and is found eligible for the coverage that is under the health plan for the group.

The individual’s self-employment over-all income can be calculated and totaled on Schedule F and Schedule C and this must be the same amount or go beyond the amount of the deduction. Take this for an example. If the business has earned a total of $12,000 but the premiums cost $15,000 then the individual cannot claim the whole $15,000. He can claim only the $12,000 amount. If the business reports some kind of loss, then the individual will not be considered eligible for health insurance deduction. He or she can still obtain the health insurance amount that has been itemized on the medical deduction that is listed on Schedule A but the amount that is listed “above the line” and its adjustment is more advantageous to the self-employed.

Self-employment taxes are also based on the total business income minus the other expenses – this is the income that is calculated and listed on Schedule C, but this is not less than the individual’s insurance premium. That is regarded as a break in the double tax.

When claiming the deduction, the self-employed individual can enter this on Form 1040 located in Line 29. There is a worksheet that is provided in the Instruction Guide for Form 1040 and provides a step by step on how to calculate the total amount of the deduction. A more detailed practice worksheet can be located in the Publication 535 guide. These worksheets can be used for practice and can also amount to the deduction that can be obtained in health insurance for the self-employed individual. Worksheet P can also be used and is found in Premium Tax Credit which is Publication 974.

Say Goodby To Mortgage Insurance Premium Reduction – Welcome President Trump

Jan 21, 2017 Posted by Sanjiv No Comments

Get ready for roller coaster ride, Mr. Trump has stared to make changes

The Department of Housing and Urban Development (HUD) announced a reduction in Mortgage Premium last week.  However, Trump administrations do not feel that the US Citizen really need this benefit.  This reduction  has been suspended indefinitely.

“FHA is committed to ensuring its mortgage insurance programs remains viable and effective in the long term for all parties involved, especially our taxpayers,” the HUD statement said. “As such, more analysis and research are deemed necessary to assess future adjustments while also considering potential market conditions in an ever-changing global economy that could impact our efforts.”

The HUD statement added that “FHA will issue a subsequent Mortgagee Letter at a later date should this policy change.”

Mortgage Banking Association is not that happy with the move. Statement was released  by David H. Stevens, President and CEO Mortgage Bankers Association (MBA) and the FHA Commissioner in the first term of the Obama Administration, following the news of the premium suspension.  “We recognize the Administration’s need to examine the overall health of the insurance program and weigh that against the benefits of lowering mortgage insurance premiums,” he said. “Given that lenders have already started preparing for the MIP decrease, it is important that any new policy be implemented in a way that minimizes disruption for borrowers and lenders. MBA looks forward to working with the new Administration to ensure the long term stability of the FHA program, creating an environment that provides clarity in regulations for lenders while at the same time promoting access to credit and protecting consumers.”

Health Insurance Deduction

Feb 7, 2015 Posted by Sanjiv No Comments

Tax deduction is a big concern, and on the other hand it is highly beneficial because it can help you in various ways. Health insurance is one of the most crucial things that you can consider in your life. And although you may compromise on many things in life, health insurance is surely something where you don’t want to take a chance. This becomes more important when you know that tax deduction can considerably help you pay for the health insurance.

The Internal Revenue Service or IRS provides various kinds of deductions for medical expenditures. There are some itemized reductions. Thus, you can make claims for standard deductions. Again some medical deductions are over-the-line exemptions and so all these can be claimed in addition to the standard deductions. With regard to healthcare tax deductions, three options as mentioned below can be chosen.

      •  In case you find that your expenditure crosses 7.5 percent of the adjusted gross earning, then you could take an itemized reduction where your expenses surpasses the brink. By qualifying medical expenses, you could consider medical, vision or dental care for your own self, your spouse or any individual dependant on you. Medical services include the ones that would prevent problems that could arise in the future, solve present problems or reduce pains. Medical drugs which need a prescription can be deductible. Further, expenses that you may incur in due course of traveling to the hospital in the form of parking fees, mileage, tolls can also be included.
      • In order to save for future medical expenditure, health savings accounts are sheltered by tax. However, in order to be eligible for this, you also need to possess a healthy insurance plan which has a high deductible. Every year, your contribution can go up to a limit set on the basis of the fact as to whether the health insurance plan is just meant for you or also includes your family.
      • Health insurance deduction can also be seen when you are self-employed. If you are in a partnership or you are the owner of greater than 2% of a corporation, you would be able to deduct the price of your health insurance policy and also that of your spouse and any other individual dependant on you. But if you have to qualify for the deductions, your policy should be in your name, that is, the name of the self-employed person, business or partnership. In this deduction, qualified long-term care premiums can be included. But again, there is a limit to the deductible amount because the age of the insured plays an important role in this. This deduction would affect your income tax. But as far as the decrease of your tax liability is concerned, this deduction would not be of any help. As a self-employed individual, you could deduct health insurance premiums from federal income taxes. As a taxpayer, you would be offered huge exemptions that could bring down the taxable income and thus lower the total amount that you would pay in federal income tax.

In order to understand more about tax deduction and the way it helps health insurance, you should have the clear idea about the following.

If there is a group health insurance provided through an employer then the tax exemption can be enjoyed. In such a scenario, probably your employer is paying the premiums of your insurance from your gross income before holding back federal tax income. This way your yearly tax income comes down and thus you will have a reduced tax bracket. In case your employer is not offering health insurance, you should ideally buy an individual health insurance policy from a private insurance organization. This might also be the case if you prefer to have a completely different coverage plan other than what is available. But again in order to avail tax deductions on health insurance in this regard, you need to note that you will only be able to deduct your private health insurance premiums on your federal income taxes if they are greater than 7.5 percent of your adjusted gross earnings

Tax deduction can also be seen in long term health care. The number of adults who need long term health care is on sharp rise. With the constant increase of health care expenditure, it seems that every single year, insurance coverage is getting lesser with respect to the total expenses for health care. Here, if you can comply with certain qualifications, then you can deduct cost of long term health care on the returns of your income tax. There are certain long term medical care expenses which are deductible. These include the costs incurred for diagnosis, medical treatment, healing and preventing an ailment. Certain drugs which need prescription are also deductible. With respect to long term medical care, the expenses include the cost incurred on nurses or certain care facility on long term basis, provided these have been prescribed specifically by a doctor. Health insurance payments can be deducted by you in the total expense; but again you would not be allowed to take health insurance deduction pertaining to life and disability.

While availing the benefits that tax deductions can do to health insurance, you need to make a note that all deductions should be the expenses paid during the year of tax filing from January 1 to December 31. In case you are mailing a payment on the last day of a year, that is 31st of December then it will surely be considered to be the expenditure for that particular calendar year.

Tax Breaks for Health Insurance

Feb 24, 2013 Posted by Sanjiv No Comments

Health insurance is one of the largest costs that most people deal with on a monthly basis other than mortgage. Health insurance for those who are self-employed is normally higher than those who have employer offset health insurance. Luckily, there is a tax break for those who are experiencing large health insurance payments.

To qualify for the IRS health care tax deductions for you and your family you must be either a self-employed individual with a net profit, have a self-employed partner who qualifies, or be shareholder with more than a 2 percent stock in an S corporation.

The insurance plan must be established under your name or the name of your qualifying partner. For the self-employed, this can be your personal name as long as this is the name the business is run under. The self-employed individual or the stockholders must be the one who is paying the health insurance premium for this credit to apply.

Stockholders must have the health insurance plan in their name or be reimbursed by the business for health costs to be eligible. This must be verifiable via W-2. To qualify for the tax credit, you must use the Schedule C or 1040 form to apply for the credit.

This tax credit can be a large offset for those who are self-employed, as health insurance costs can equal up to a large amount of self-employed income each year. Self-employed persons also pay a higher tax rate than those with an employer so this credit can decrease the tax amount in an effective manner.

Discounted Kaiser Insurance for Small Business Owners

Apr 29, 2012 Posted by Sanjiv No Comments

Our public accounting firm is focused on Small Business Owners and Individuals and many times new business owners ask us about the health insurance.   Most of us live in Bay Area and prefer  “Kaiser” as a  health care provider and therefore I gathered some basic information about Kaiser health care plans for small business owners.

Kaiser offers many health care plans but one that suites the need of small business owners is called “GROUP POLICY”.  You can buy this group policy in two flavors.  One with annual deductible and one with no annual deductible.

Plan with annual deductibles cost about $250-$300 less than the non-deductible plans.  Both policies cover doctors visit and other services offered by Kaiser.  Both plans have minimum out of pocket doctor’s visit cost but the key difference is that with annual deductible plan you have to pay the minimum deductible ($1500) before your major benefits kick in.   For example,  daily rate for hospital room may be $500/night and you will have to pay for 3 nights before your insurance pays.  However with non-deductible plans you won’t be required to pay for these three days.

So, if you and your employees are in fairly healthy and won’t be needing any major services than you can opt for deductible plan and save a significant amount on monthly basis.

How about Spouse and kids ?

Yes, off course your employees along with officers/owners of the company can also enroll their dependents including kids and spouse.  Most polices don’t allow to include your parents.

What are the requirements of this kind of policy ?

  • You must have a business in good standing.
  • You must have two or more people enrolling in the policy.
  • More than 50% of all eligible person should have an insurance.

Can I get tax deduction for the health policy ?

You can read my post about health care policy deduction for more details.

How much does the policy cost?

I found the group policy of very good value.   Rate very by age but here is a simple example. Female less than 30 years old can get this kind of policy for about $300.  Not Bad ?

How can I enroll for group policy ?

Simply call Kaiser and ask for enrolling in group policy.

Archer MSA – Tax-Exempt Custodial Account or Trust

Nov 2, 2017 Posted by deepak No Comments

 Archer MSA is the tax-exempt custodial account or trust that is set up with financial institutions like the insurance companies or the banks. Contributions that are made into this account can also be used as payment for healthcare costs that are not under the health insurance policy coverage.

Benefits from the Archer MSA

  •  Insurance costs can be lowered
  • Contributions as well as any interest or earnings on these contributions can grow free of tax until it I withdrawn. This is like the contributions that are tax free when it is used to cover the expenses for qualified medical costs.
  • It is possible to deduct the individual’s contributions atop the income tax return even if this is not itemized.

 Who can have Archer Medical Savings Account?

 There are two rules to determine whether the person qualifies for the Archer MSA or not:

  1. The individual must be working for a small business or a small employer. The definition of a small employer is an entrepreneur who has an average of 50 or even fewer employees in the course of two years.
  2. The individual must have an HDHP or the high deductible health plan. The HDHP has higher deductible than a number of health plans out there and also has maximum limits when set alongside the amount that must be paid for out of pocket costs.

The premiums for the High Deductible Heath Plan are usually 20 to 50% lower than the health plans that has lower deductions. If the individual is self-employed, then these are also tax-deductible.

The HDHP must also meet specific IRS requirements so that the individual can qualify and get his or her own Archer Medical Savings Account. The basis are types of coverage, the minimum annual and the maximum annual.

Who Would This Work For?

 The individual can only obtain an Archer MSA if he or she is enrolled in a high deductible health plan that is eligible and qualified. The kind of plan that is ideal for a young individual who is in good condition and single is the Archer MSA because for others, this can be quite a big and serious gamble financially due to the high deductibles as well as the requirements that must be met to be qualified for the insurance coverage.

If the Archer MSA is the only kind of insurance that is possible to get, then it is better the individual saves and has enough money in order to meet the deductions from the MSA. In doing so, this ensures that he or she is saving money that is tax free instead of paying the amount right there and then, fresh from the person’s checking account, even after it has already been taxed.

Archer MSA must be paired with HDHP

 Usually, the Archer MSA is paired with HDHP or what is called the High Deductible Health Plan. This is because the HDHP has higher deductibles compared to most health plan coverage. It also has a limit on the total amount that the individual must pay to cover the expenses that he or she first shelled out cash for. The premiums for HDHP must also meet the certain requirements set by the IRS so that it can be used with the Archer Medical Savings Account.

Requirements for Archer Medical Savings Accounts

 The legislation that provides Archer MSAs expired toward the end of 2007. Taxpayers, as well as their employers, cannot establish Archer Medical Savings Accounts any longer. However, if they have existing accounts prior to 2007 then they can use and contribute to this.

How MSAs Work

 Archer MSAs are custodial accounts that come with insurance providers and financial institutions. These are accounts that are tax-deductible and can be used to qualify for the medical expenses. Similar to HSA or what is also known as health savings accounts, the Archer Medical Savings Account function in similar manner like the IRA or the individual retirement accounts. The employee or the employer can also contribute to Archer Medical Savings Account. The individual can deduct from the contributions in the taxes, these are also subject to a couple of rules. Archer Medical Savings Account have an interest that can be tax-free and even tax-deferred. The withdrawals for these medical expenses may often be free from tax withdrawals for the non-medical reasons of it being taxable. If that is the case, then the penalties apply.

Archer Medical Savings Accounts Are Not Substitutes for Health Insurance

 It is important to note that the MSAs are not substitutes for health insurance plans. It may be eligible for health care costs that are not included in the insurance. The individual must then cover the high-deductible health care insurance during the time that this has been established in Medical Savings Account.

Qualifying Medical Expenses

 There are tax-free contribution and distributions from the Archer Medical Savings Account that can also be brought into consideration all for the purposes of following the medical costs. These are:

  • Emergency treatment
  • Dental Care
  • Hospitalization
  • Prescription drugs, which also includes insulin and medications that can be ordered over the counter as long as these are prescribed by physicians
  • Acupuncture
  • COBRA continuation coverage
  • Premiums from the health insurance and policy plan if the individual is unemployed
  • Ambulance service
  • Chiropractic Care
  • Lab work
  • Vision care
  • Doctor’s visits

If the individual withdraws money from his account for other purposes, then the funds are regarded as taxable and considered as regular income.

There is a 20% tax penalty that is applied to the amount of the withdrawal unless the individual is aged 65 or older and disabled. This increase in penalty ranges from 15% in 2011. When the individual is older than 65, then he or she can withdraw the unused portion of the Archer Medical Savings Account in order to supplement the costs of retirement.

The distributions and contributions that have been made must be reported especially when these are eligible medical expenses.

Tax Deductible Contributions

 The contributions that are limited based on the amount of the individual’s health plan policies are also deductible. If there is a family healthcare plan, then it is possible to deduct 75% on the annual premium. Other than that, 65% can also be deducted.

Both the employee and the employer can contribute to the Archer Medical Savings Account of the former. The only difference is this contribution is done on different dates. The health insurance policy of the employee cannot have lapses at any given time of that year. The contributions of the employer cannot also exceed the annual earnings.

Taxable Contributions

 If the employer is the one responsible to make contributions to the account then it also exceeds the maximum that is allowed by the health plan of the employee. As mentioned previously, the employee must pay 6% tax atop the amount.

Making Contributions to the Archer MSA

 The tax deductible on the contributions to the Archer Medical Savings Account is made by either the employee or the employer but not by both in similar year. The employee must also be covered by the HDHP that whole year in order for the full amount to be deducted. The contributions of the employer are also nontaxable to the individual.

There are limitations to the total amount that is contributed to the Archer Medical Savings Account. The maximum of this is 75% on the annual plan deductible on the health care costs. This is for the family plan. It is 65% if it is a family plan. An example of this calculation of this is that a family plan has a deductible of $4,800 and it is possible for the individual to contribute $3,600 every year. If it is, on the other hand, an individual plan, then it has a $2,400 deductible. The most that the individual can contribute is a total of $1,560.

Any contributions that go beyond the maximum cannot be deducted from tax and the individual will also pay 6% for the excise task on the amount. Another limitation is contributions cannot exceed what the individual earned for the whole year.

Withdrawing Money from Archer MSA

 It is possible for the policy holders to withdraw funds from their Archer Medical Savings Account in order to cover for the medical expenses that have not been reimbursed. There are some trustees that furnish the checks for the individual to write himself or herself. Then there are others who give them debit cards so that it can provide instant access to the Medical Savings Account of the Archer funds.

The individual and the trustee must report the distributions. However, the individual is not required to pay the income tax as long as this was used for an eligible medical cost like ambulance service, dental expenses, emergency treatment, hospitalization, prescription drugs, chiropractic and acupuncture, wellness and preventive programs, vision care that includes glasses, lab services, health insurance premiums while unemployed, doctor’s office visits and COBRA continuation coverage.

If any portion of the contribution was regarded as a non-qualified medical costs, like the premiums for the HDHP, then the individual must pay the income tax including the penalty tax of 15% on the amount. However, there is also no penalty if the individual is disabled, aged 65 and older or passed away in that said year.

Archer Medical Savings Accounts are portable and will stay with the policy holder even if there is a change in employers. Any money that was not used for that year primarily for medical reasons can continue to grow and even be tax-deferred and remain in the account. The option to invest is still a choice and it will affect the return rate. Just like any investment, the individual must make sure that there are risks when they do choose to sign up.

What Happens to the Money from Archer MSA?

 If the person does not use the money by the end of the year, then it rolls over. If the individual dries to access the allotted money for other expenses aside from medical reasons, this will be taxed. It is possible to control how little or how much money can be deposited so policy holders are advised to plan wisely.

Deciding Between the HSA and the Archer MSA

 When the individual has the Archer Medical Savings Account, it is only necessary that he or she also checks the same kind of savings, specifically the HSA or the health savings account. The latter was created as a significant part of the Medicare Prescription Drug, Modernization and Improvement Act in 2003 to expand the benefits that were offered by the MSA Funds from the Archer Medical Savings Account and that can then be carried over to the HSA, therefore making it easier and simpler for the individual to just go to one kind and then to another. However, before the individual can do this, he or she should understand the major differences between the HAS and the Archer MSA.

  • An eligible individual below the age of 65 who is under a health insurance that qualifies for HDHP can have an HAS; on the other hand, an individual who is self-employer or a small business employee who his covered by an HDHP that qualifies can also start having an Archer MSA.
  • The minimum amount that is deducted can also be applied to the individual’s HDHP and also used alongside the HAS that has $1,200 for the individual as well as $2,400 for plans that cover family. It is also lower than the usual minimum annual deductions that are applied to the HDHP when put alongside the Archer Medical Savings Account.
  • Both the employee and the employer (if there are) can contribute to the HAS in the same year. The Archer MSA does not let the contributions from the employee and the employer be processed in the similar year.
  • The individual can contribute more every year to the HSA than he can contribute to the Archer Medical Savings Account. The annual contributions to the HSA can be limited to the amount $3,050 for individual plans and $6,150 for family plans.
  • If the individual reaches the age 55 by the end of the year, then they can also catch up in terms of contributions to their HSA. It can even amount to $1,000. There are no more catch up contributions that can also be made to the Archer Medical Savings Account.

What are Health Reimbursement Arrangements and How Do These Work?

Oct 29, 2017 Posted by deepak No Comments

An HAS or what is also commonly known as Health Reimbursement Arrangement has been approved by the IRS and is funded by employers. It is a tax-advantaged health benefit insurance for the employees which allow them to be reimbursed for the medical expenses that they had to spend for from out of their pockets. This is also a health insurance policy that is premium. It is important to know that HRA is not considered to be health insurance. The HRA lets the employer contribute to the account of the employee and also provide the reimbursement for expenses that are eligible. An HRA insurance plan is also a smart and efficient way to provide the health insurance benefits and let the employees pay for a varied range of medical costs that are not covered by their insurance policies.

The primary requirements for the HRA are 1) the plan can be funded primarily by just the employer and can also not be sponsored by deducting the salary of the employee and 2) the plan can provide the benefits especially for medical expenses that are substantiated.

In other words, the HRA is regarded as a copay or a deductible. Employees can partner up with their employers on any health plan that they choose. This works by the employer setting aside the allocated budget to the employee’s HRA. This is for an annual basis. The difference between the other health spending accounts is that only the employer can put the money into the HRA. The money is also available to the employee when the year starts.

HRAs can be designed however way the employer wants to fashion it. It should just suit the particular needs of both the employer as well as the employee. Interestingly, the HRA is the most flexible types, if not one of, among all the benefits plans for the employee. This is the very reason why it appeals to a number of employers.

A federal legislation was passed way back December 2016 and because if this, there is an HRA that is available specifically for small businesses. These are covered by new provisions by the HRA that are targeted solely for small businesses.

How to Use the HRA

 When the policy holder goes to the hospital or sees a doctor, the money that is in his or her HRA is already qualified to cover the medical costs. A number of the members with HRAs have a payment process that is regarded as seamless. The doctors bill the employers and the employers use the funds from the employee’s HRA to pay the costs. This processed payment will then be recorded on the benefits and the explanation or what is also known as the EOB. The individual can also check the online account.

If the individual uses up all the amount that is in HRA even before the year ends, then he or she is required to pay what is owed out of his or her own pocket. If there is still money left toward the end of the year, there is a possibility that the employer may roll it over so that it can be used the next year. However, there are some employers that won’t do this so it is better to use it than lose it.

What Can It Be Spent On?

 The employer decides which medical costs are eligible to be reimbursed. Usually, the HRAs cover:

  • Deductibles
  • Copays (for PPO only)
  • Coinsurance

The HRA cannot be used to pay the monthly premiums of any health insurance.

Advantages of the Health Reimbursement Arrangements

 The HRA allows both the employer and the employee to save on the healthcare expenses.

These HRAs have benefits that help the policy holders save more especially when it comes to health care expenses.

  • Affordability: The premiums for the health care coverage plans that are offered with HRAs are pretty much lower every month than any other plans out there.
  • Employer contributions: The employer can fully fund the HRA even without any contribution from the employee.

Enrolling in the HRA can also provide major advantages, especially to employees. These are reduced health insurance premium that result from the Health Plan that is High Deductible and the availability of sponsored funds from the employer to pay the medical costs that are incurred previously to the point when the deductible of the insurance has been met.

Expenses can be reimbursed from HRA depending on the design of the plan. This covers co-payments, prescription medications, dental expenses, vision expenses, co-insurance and deductibles. This also includes other heath related expenses that were first paid by the employee from their pockets.

HRA funds are also contributed to the employees but on a pre-tax setting. The funds, therefore, aren’t taxable, especially to the employee. Hat being the case, employees do not have to claim that there is a deduction in their income tax for the expense that was reimbursed because of the HRA.

How the HRA Benefits the Employer

 HRAs are commonly offered in relation with the Health Plan that is High Deductible. There is a rule that the High Deductible Plan results in a premium cost that has been reduced can create real savings for the healthcare costs which benefits the employer. HRA contributions can also be funded through the savings that are gained from the premium costs on the lower statute. By funding the HRA, the company’s employer can effectively bridge the gap that separates the higher deductibles from the expenditure amounts. This is where the insurance coverage gets a kick for the employees.

Above all, the contributions of the employer to the health reimbursement arrangements are completely tax deductible. It is also tax free for the employee.

Employers can establish the costs of the HRA funds – this includes every health-related qualified expense. Since these are also flexible, the HRA coverage allows the employers to control the costs especially when providing the benefits from the healthcare policy and at the same time provide benefits to the valued employee.

With the HRA< the healthcare expenditures of the employee are clear and visible for both the employer and the employee. This fosters a more open communication pathway as well as a bigger understanding on the over-all costs of the healthcare. On top of this, employees can also control and monitor the total healthcare costs and the upside to this is that they become more intelligent and more conscientious when consuming anything related to healthcare.

Definition of Terms

 Deductible, Co-insurance and Co-pay: Every medical expense that applies to the health plan as deductibles, co-pay amount and coinsurance total can all qualify and be eligible for reimbursement. These qualified expenses are incurred by employees as well as the family of the employees. The EOB or the statement on the Explanation of the Benefits that show the evidence of expenses. It applies to the deductible on the insurance and is also required for subtracting the requests for reimbursement.

 Deductible: The total medical costs that apply to the deductible amount of the health plan can all qualify for reimbursement. This plan is the design that also does not include co-insurance or co-pay amounts. The qualified and eligible expenses that have been incurred by both the employee as well as the employee’s family are also considered as deductible. The EOB statement is required in order to substantiate requests for reimbursements.

All Medical Expenses That Are Uninsured: All medical expenses that were paid from the pockets of the employees or what is also regarded as uninsured costs are qualified and eligible. This also includes co-pays, dental, prescription, vision, coinsurance , nd deductibles. These expenses can also be incurred via the employee or the family of the employee. Proof includes the EOB statement, the receipt the bill that identifies the specific date of service, the total amount of rendered service and the official name of the business of the service that provided this to the employee. These are the usual paperwork that are required to substantiate the reimbursement requests.

Specific Expenses: There are plans that are designed to just cover one limited service such as just dental, just vision, just orthodontia, just prescription medical and more. Copies of the receipt or copies of the bill that also identify the date when the service was rendered, total cost of the service and the provider of the service can be used to request for reimbursement.

More Facts About Heath Reimbursement Arrangements

 One thing that should be known about the HRA is that these are merely notional arrangements. There are no funds that must be considered as expenses, not until the reimbursements have been paid. Through the Health Reimbursement Arrangements, employers can reimburse the employees directly, but this is only after the medical expenses that were incurred by the employee have been approved.

There are Annual Limits for some Health Reimbursement Arrangements

 Like that of the HSA or the health savings account, there are limits to the over-all amount of cash that any employer contributes to specific HRAs. There are annual contributions of the employer for HRAs of small businesses and reach a cap that amounts to $4,950. This is for single employees. If the employee has a family, then the cap is $10,000.

As for the other HRAs, like the one-person HRA that is Stand-Alone and the Integrated HRA, the contributions on a yearly basis are limitless.

Eligible Expenses of Health Reimbursement Arrangement

 An HRA can be reimbursed at any expense and is also regarded as an eligible medical cost as stated under Section 213 of the IRS code. This includes the premiums for the health insurance coverage care of policies. It is also under the IRS guidelines that employers can restrict what can be reimbursed in whatever way the opt to especially since it is their health reimbursement arrangement plan.

HRAs Can Roll Over

 The HRA can also roll forward to the next month or even to the next year. It depends on the Health Reimbursement Arrangement Plan as chosen by the employer. The small businesses that have HRA can also roll forward to another month. The difference is that they cannot roll onward to the next year.

As for the Stand-Alone HRAs for a single individual or the Integrated HRAs, there are employers that let the balances accrue from one specific year and then onward to the next year. They can also design these programs in such a way that makes it not possible for the HRA to rollover annually.

Employers can let the employees access their HRA accounts when they retire.

Reporting Features of the Administration of the HRA

 The reporting features of the HRA administration require monitoring on real time. The liabilities, utilization and reimbursements have to be meticulously looked at. Employers can also change the plans and the benefits any time they want or they can cancel it altogether, as long as the HRAs of the Small Businesses are supplied to the employees and they are also informed ahead of time.

Discrimination Testing Along with the HIPAA

 The HIPAA is also known as the Act for the Accountability and Portability of Health Insurance. Plans should avoid discrimination especially concerning the employees. This includes looking into the plan’s parameters and the allocation of the funds. It must ensure all employees can have similar access to this particular funded account.

HRA is also for Retired Employees

 There are HRA plans that cover employees who are already retired, as well as their spouses and their tax dependents. Employers consider the HRA as the alternative to the traditional healthcare in a retirement home, which is actually more expensive.

What Happens to the Health Reimbursement Arrangements When Employee Resigns?

 Since the employer owns the account of the employee and the latter decides to leave the job that he gets from the employer, he may only be able to keep using it, once the employer decides to let him or the costs are qualified. If not, then the benefits end once the employee resigns and it’s only fair that it does.

If the individual is unsure whether the company and the employer offers HRA, the way to find out is to directly speak with the Human Resources Department and find out.

Understanding Long Term Care Coverage

Oct 25, 2017 Posted by deepak No Comments

A long-term care coverage may be expensive but there are possible steps that can be taken so that it would become more flexible and affordable. “Long-term care” is the help people who have chronic illnesses or disabilities or conditions require every day and over extended periods of time. The kind of help that is needed can also vary from assisting simple activities like bathing, eating and dressing to expert care that only nurses and other professionals such as therapists can provide.

Employer-based coverage of health insurance does not cover the daily and extended services for long-term care. Medicare can only cover short stays in nursing homes or limited time at home care but only under extremely strict conditions. In order to cover the potential expenses in long-term coverage for health care, some people opt to buy the long-term insurance.

Policies provide a wide range of coverage options to choose from. Since it is hard to predict the future and how long-term care necessities will be, individuals are strongly advised to buy policies with flexible options. It depends on the policy options that are selected. Long term insurance for medical care can also assist in paying for the ideal care that is necessary, whether the patient is staying at home or in a nursing home or a facility that is assisted-living. The insurance also covers the expenses for care coordination as well as day care of and other extra services. There are even policies that can also assist in paying the costs that are associated to modifying homes in order for the elderly to live safely in it.

Factors to consider

 Health and age. Insurance policies are inexpensive when purchased at a younger age and the individual is of good health. If the individual is older and has already been diagnosed with health conditions that are serious, there is the high possibility of them not getting coverage. If they do, then they are expected to spend more.

 The premiums. The individual must always check whether he or she can pay the premium of the policy – today and tomorrow – without having to go broke. Premiums have the tendency to increase over a long period of time and when the individual’s income unexpectedly goes down, it may be a challenge. There are individuals who find themselves unable to pay the premiums. They should be careful when making this decision because it is possible to lose all hard-earned money that was invested in policies.

 The income. If the individual has difficulty paying the bills and are concerned regarding paying this for the coming years, then spending thousands for a year just for long-term care policies will not make sense. If the income of the individual is low and there are few assets that are needed for the health policies, then they can qualify immediately for Medicaid. Medicaid covers the care in nursing home. In a number of states, it also covers at-home care but a limited amount. The downside is that for individuals to qualify, they must exhaust all of their resources first and meet the requirements for eligibility that Medicaid have posted.

 The support system. The individual can surround himself with friends and family that can offer long-term care especially if he needs it. However, they should think about the possibility of these people’s abilities to help them and how they can help them. Sometimes, some friends and family cannot help as much as the individual would like them to which only results to disappointment.

 Savings and investments. Financial advisers and lawyers specialize in estate planning or elder law and they can advise elderly individuals on ways to save and invest for long-term expenses in care for the future. They can also list the cons and pros and show these to their clients so the latter is knowledgeable before completely purchasing or investing in a care insurance that is long-term.

 The Taxes. The benefits that were paid through the policy of a long-term care are generally not regarded as taxed in the form of income. There are also many policies that are sold today that are considered to be “tax-qualified” when set in federal standards. Therefore, if the individual itemizes the deductions and also have medical costs that exceed 7.5% of the adjusted gross income, then he or she can also deduct the final value of all the premiums obtained from the federal income as well as the taxes. The total amount of the deduction from the federal taxes depends heavily on the age of the individual. A number of states offer tax deductions and credits but limited.

 The Policy Sources for Long-Term Care

 Individual Plans. A number of people opt for long-term care health insurance policies via their insurance agents or their brokers. When they choose to do this, they have to make sure that the person they are working to get this policy has had training when it comes to insurance for long-term health care, as there are many states that require this. They should also check with the insurance departments of their states for the credibility of the person they are dealing with to see if this particular agent or broker has the license to sell health care policies within that state in the first place.

Plans from Employers. There are employers that offer long-term health insurance policies or make these policies available for every individual through group rates that have discounts. There are also group plans that do not have underwriting. This means that these policy holders do not have to meet the medical requirements in order to qualify, at least in the beginning. There are also benefits that are available to various family members who need to pay premiums and also have to pass the medical screenings. There are also cases wherein when the individual leaves the employer or the latter has stopped providing benefits to the former, then the individual can retain the health insurance policy and also receive something similar if they choose to continue paying the premiums.

Plans That Organizations Offer. Professional as well as service organizations that the individual belongs to offer group-rate insurance policies for long term health care to every member. Similar with coverage that are sponsored by employers, individuals must study their options so that they know the possible scenarios if they choose to have their coverage terminated or they choose to leave these organizations that they belong to.

Partnership Programs from the State. If the individual chooses to invest in long-term health care insurance policies that qualify for the partnership programs from the state, he or she can keep a specific amount of the over-all assets and still be regarded eligible for Medicaid. These states also have partnership programs. The individuals have to make sure to check with their insurance agents whether the health policies that they are considering are qualified under these partnership programs of the particular state, if it is associated with Medicaid and how and when they could qualify for this. If they have additional questions re: Medicaid and the State Partnership Program, then they should check with the Health Insurance Policies Assistance Program of their state.

Joint Policies. There are plans that let the individual by single policies to cover more than an individual. The policy is also used by husbands and wives, partners, or a couple of adults that are related to one another. There are usually maximum benefits that apply to every individual that is insured with that particular policy. For example, if a husband and wife has a health care policy that has $100,000 benefit maximum and one of them uses $40,000, then the other would still have $60,000 remaining for him or her. The downside to this is that there is a possibility that one person will deplete the funds that the other one would eventually need in the future.

Long Term Health Care Insurance Coverage and Its Pre-Existing Conditions

 Insurance providers turn down the applicants for pre-existing conditions that they already have. If a company sells health care policies to individuals who already have conditions, the insurers can withhold payment for the healthcare that are related to these specific conditions for some time after the insurance has been sold. Therefore, the individual then has to make sure that the time that the payments have been withheld are reasonable for him or her. If they fail to inform the company of this pre-existing condition, then the insurer may not even pay for the care that is related to the specific condition in the first place.

Covered Services

 There are insurance companies that require their policy holders to turn to services from home care agencies or licensed professionals that are certified. There are others that allow the latter to hire non-licensed and independent providers or even family members. There are some companies that put certain qualifications like licensure if this is available within the state or restrictions on the programs and the facilities that are used. Policy holders must then make sure that they buy policies that cover these facilities, services and programs and these are also available in their locations. Moving to a different location may also make differences in the coverage as well as the kinds of services that are available.

Health care insurance coverage has the following arrangements on long-term care:

Nursing home. These are facilities that provide full-range health care, personal care, rehabilitation care and daily activities 24 hours a day and 7 days a week. It is necessary that individuals cover find out if this policy does not just cover lodging.

Assisted living. This is a resident that is like an apartment. It has units and there are individualized services and personal care available whenever necessary. An example of this is that the patients can have their meals delivered right into their apartment.

 Day Care Services for Adults. This is a program that is not included in the home and it provides social, health and support services for adults in a supervised setting. These are ideal for those who need some help during their stay.

 Home Care. This is an individual or an agency that performs personalized services like grooming, bathing and assistance in housework and chores.

 Home Modification. These are adaptations and renovations done in the home, like installing grab bars or ramps, to make it more livable and accessible.

 Care Coordination. These are services from licensed and trained professionals who assist in locating services, determining needs and arranging the care for policy holders. This policy also includes monitoring the care providers.

 Service Options for Future. If there is a new kind of long-term health care services that has been developed after purchasing the insurance, then there are also some policies that are flexible enough to cover these services as well. This option can be available once the policy has specific language regarding alternative options.

 Amounts and Limits of the Policy Coverage

 Long-term health care coverage also pays for various services (for example, $50 for home care as well as $100 for nursing home care). They can also pay a particular rate for a specific service. Most health care policies have limits to these amounts for the benefits that they receive, like specific total years or the over-all dollar amount. Therefore, when purchasing a health care insurance policy, the individual must select the specific benefit amount as well as the duration that is right to fit the budget as well as the anticipated needs.

In order to figure out how useful policies are to the individual, he or she must compare the total value of the policy and its daily benefits alongside the average cost and value of the health care within the area. They also have to remember that they have to cover the difference. Price of long term health care can increase over a period of time. These benefits can also begin to erode especially if the policy holder does not choose one that protects it from the inflation in that particular policy.

The Basics of Health Savings Account

Oct 21, 2017 Posted by deepak No Comments

An HAS is a kind of savings that lets the employer and the employee put aside some money as a pre-tax in order to pay for eligible medical expenses. It is important to note that an HAS can only be used if the employee has a HDHP or what is also known as the High Deductible Plan.

The HAS is also a medical savings that has a tax-advantaged made available to all taxpayers in the US. The over-all funds that are in the account may not be subjected to federal tax especially during the time of the deposit. The difference between the FSA or what is known as the Flexible Spending Account, is that the HAS can carry over and also accumulate every year if this has not been spent. The reason for this is because the HAS is owned by the employee, therefore setting it apart from the HRA or the Health Reimbursement Arrangement which is owned by the company. This is also an alternate source for tax-deductible funds. Both, however, are paired with standard health plans or the HDHPs.

HSA funds can also be used for eligible medical costs that have no liability or even penalty on federal taxes. Starting early 2011, the medications that are purchased over the counter can no longer be paid using the HSA if there is no prescription from the doctors. The withdrawals for these non-medical costs are also regarded in the same way as those of the IRA or the individual retirement accounts. This is because they can provide the tax advantages if these are taken after they retire. They can also incur penalties when these are taken earlier. These accounts are components of health care that is specifically targeted to consumers.

The HSAs and its proponents believe that these are necessary reforms that can reduce the increase in expenses regarding health care as well as the effectivity of the system. According to these proponents, the HSA can encourage people to save for their unexpected future health care as well as the expenses that go along with it. This allows patients to obtain the necessary care and there is no gatekeeper involved. Usually the gatekeepers determine what the individual can receive as benefits. Consumers are now more responsible when it comes to their own choices in their health care all because of the HDHP.

As for those who do not find the HSA necessary and are opponents of this, they believe that it makes the medical system worse. Health care in the US cannot improve through the HSA because individuals may even hold back on their expenses. They may also spend it in unnecessary circumstances simply because it has already accumulated the penalty taxes just by withdrawing it. Those who have problems in their health have annual costs that are predictable and choose to avoid the HSA so that the costs can be paid by their insurance. There is a current ongoing debate about the satisfaction of the customers who hold these plans.

These usually have lower monthly premiums than most plans that have low deductibles. Using the untaxed funds in the Health Savings Account allows the employee to pay for the medical costs even before the deductible has been reached. This also includes other deductibles such as copayments which are usually payments done from the employee’s pockets. This eventually reduces the over-all value of health care expenses.

The funds from the employee’s HSA carries or rolls over to the next year if it has not been spent in the year it was allocated. The HAS can also earn interest. It is possible for employees to open the HSA through their banks or financial institutions that they have access to.

History of the HSAs

 The Health Savings Accounts were established in compliance with the Medicare Prescription Drug, Improvement and Modernization Act. This is also the enactment of the Section 223 of Internal Revenue Code. This was signed on December 8, 2003 by President George Bush. They were also developed so that it can replace the account system for the medical savings.

Deposits of the HAS

 Deposits to the HSA fund can be made by any individual who holds the policy, as long as this also comes with a HDHP or the high deductible health plan care of the individual’s employer. If the employer makes the deposit to the plan for all his employees then everyone must be regarded equally. This is covered in the non-discrimination rules that is also stated in the act. If the contributions have been made via the plan stated in Section 125 then the rules for non-discrimination also do not apply. Employers have to treat the part time and the full time employees differently. Employers can also treat the family and individual participants n different manner. The treatment of the employees who have not been enrolled in the eligible and high deductible health plan covered by the HAS is not also considered solely for non-discrimination purposes. Employers can also contribute more than usual for the employees who have not been compensated as highly as the others.

The contributions from the employer and to the employee’s HSA can also be made on the pre-tax basis, depending on the preference of the employer. If the said option is not considered by the employer then these contributions are made on post-tax basis and also used to reduce the GTI or gross taxable income on the Form 1040 of the following year. The pre-tax contributions of the employer are also not subject to the Medicare Taxes as well as Federal Insurance Contributions Tax Act. It is important to note that the pre-tax contributions of the employee that were not made via the cafeteria plans cannot be subject to Medicare and FICA taxes. No matter what the method used or tax savings associated regarding the deposit, these can be made by persons that cover the HAS-eligible and high deductible plan that does not include coverage way beyond what is qualified and eligible for the health care coverage.

The maximum deposit on the annual HAS is also the lesser compared to the deductible or what is specified in the limitations of the Internal Revenue Service. Over time, Congress has then abolished this particular limit, basing this on the set statutory and deductible that limits the contributions to its maximum amount. Every contribution that is sent to the HAS, no matter the source, can also be included in the maximum annual amount.

The catch up and statute provision can also apply for the participants of the plan who are aged 55 and older. This allows the IRS to limit the increase. In the income tax year 2015, the limit to the contribution is $3,350 for single individuals and it is $6,650 for married individuals. There is an additional $1,000 increase for those who are older than 55.

Every deposit that is made to HSA can ultimately become the possession of the plan holder, no matter where the deposit comes from. The funds that have been deposited and are not withdrawn can be carried over to next year. Plan holders who also discontinue their qualified insurance coverage from the HSA can deposit even more funds, and the funds that are already placed in the individual’s HSA can still be used.

On December 20, 2006, the Tax Relief and Health Care Act was signed and put into law. It also added another provision that allowed the roll-over of all IRA assets for just one time so that it can equally fund up and amount to a maximum contribution for the HSA that is set for a year. However, the tax treatments on the HSA for every state varies. There are three states that do not let HAS contributions be deducted from the tax earnings or the state income taxes. These are Alabama, New Jersey and California.

Investments on the HAS

 The funds in the HSA can also be invested in the same manner as that of investments that have been done for the IRA or the individual retirement account. The investment earnings that have been sheltered from the taxation until the point that the money has been withdrawn can also be sheltered at that time.

Similar to the IRA that is self-directed, the account for health savings can also be treated as such. A usual HSA custodian offers investments like stocks, mutual funds, bonds, financial institutions and CDs. These also provide the accounts that offer alternatives on investments which can also be made through the HAS. The Section 408 of Internal Revenue Code does not prohibit the investment in collectibles and life insurance but HSAs can also be used to invest in various assets which also include precious metals, real estate notes, private and public stocks and more.

HSAs can roll over from one fund to another and HAS cannot roll into the IRA or the 401k. Funds from these investment vehicles can also be rolled into the HAS, except for the IRA transfer that is done one time as mentioned in the previous paragraph. Unlike the contributions to the 401k plan, the HAS contributions that belong to the plan holder, no matter the deposit source, is already his or her possession. An individual that is contributing to the HSA has no obligation whatsoever to contribute to the HSA that is sponsored by his or her employer. However, employers require payroll contributions be made to the HSA plan that is sponsored.

Withdrawals for HSA

 Policy holders of the HSA do not have to get the advance approval are of the trustee of the HSA or the medical insurer for them to withdraw their funds. Funds are not also subject to taxes if these are for eligible medical costs. The costs include expenses for items and services that have been covered by the plan but is also subject to the cost-sharing of the company like coinsurance, copayments and deductible. This can also over the expenses that are not included in the medical policies. These are vision, dental, chiropractic care as well as the medical equipment that should last for a long time, specifically hearing aids and eyeglasses. Transportation that is connected to medical care are also included in this health plan.

There are many ways to fund the HSA can be obtained. There are HSAs that come with a debit card. There are others that give the policy holders checks so that this can be used. Some have reimbursement processes that is close to having a medical insurance. A number of HSAs also have a number of possible methods for withdrawal of the HSA. The methods that are available vary from one HSA to another. The debits and checks cannot be made payable to provider of the health plan. The funds can also be withdrawn for this reason. Withdrawals are not documents when it is not a qualified and eligible medical costs. These are subject to taxes with a penalty of 20%. This is waived for individuals who are aged 65 and older and have unfortunately become disabled during the time when the withdrawal is done. The only tax that is paid in this situation is taken into effect when the account has already become tax-deferred, somehow similar to the IRA. Medical expenses remain to free of taxes.

The account holders are also required to retain their documentation to show the qualified medical costs. The failure to do this and to show documentation can also cause Internal Revenue to rule out the withdrawals that have not been qualified for the medical expenses along with the over-all costs and subject to the additional penalties of the taxpayer.

Self-reimbursements have no deadline for qualified medical costs that are incurred after HSA has been established. The participants can also make the most of paying for these medical costs fresh from their pockets and also retain the receipts as long as their accounts are tax-free. Money can also be withdrawn for reasons to the value of the recipients.

Health Care Options: Using a Flexible Spending Account or Flexible Spending Arrangement

Oct 14, 2017 Posted by deepak No Comments

Employees who have health plans care of their jobs can use what is called the FSA or the Flexible Spending Arrangement or Flexible Spending Account in order to cover the deductibles, copayments, drugs and health care expenses. Using the FSA reduces the taxes that they have to pay at the end of the day.

What is the FSA?

 A Flexible Spending Arrangement (also regarded as flexible spending account) is an account where anyone can put their money in so that they can use this to cover specific health care costs straight from their pockets. The FSA has no taxes. This means the individual can save a specific amount that is similar to the taxes that he or she paid on top of the money that was set aside.

To explain it further, this is a tax-advantaged account for financial purposes that is set up via what is called “cafeteria plan.” The FSA allows the employees to cast aside portions of the earnings that the policy holders pay the qualified expenses that come in the form of the plan. Money that is deducted from the pay of the employee and then to an FSA is not included in the payroll taxes. This results to substantial payroll and tax savings.

There was a disadvantage when using the FSA before the Affordable Care Act. The funds that were not used will be forfeited by the employer at the end of the year. That is why employees are encouraged to use the FSA, rather than lose it. When reading the terms that are stated under the Affordable Care Act, an employee can carry the amount of a maximum of $500 over to the next year and not have to lose the funds.

Employers can make contributions to the FSA of their employees but it is not a requirement.

Facts About the FSAs

 FSAs come with a limit of $2,600 every year for every employer. If the individual is married, then the individual’s spouse can get a maximum of $2,600 in the Flexible Spending Arrangement with the employer as well.

  • The funds in the FSA can be used to pay for specific dental and medical expenses for the individual, the individual’s spouse if married and the dependents, if there are.
  • FSA funds can be spent to pay copayments as well as deductibles but not for premiums on insurance.
  • FSA funds can also be spent on prescription drugs, along with medicines that are ordered over the counter with the prescription from a doctor. Insulin reimbursements are also allowed even without prescriptions.
  • FSAs can also be used to cover the costs of medical equipment such as bandages, crutches and diagnostic devices specifically blood sugar kits.

 

Limits, Carry Overs and Grace Periods of the FSA

 Policy holders must utilize the money obtained from an FSA within the year that it was set for. However, the employers of these individuals usually offer these two options:

  • FSA provides a specific “grace period” that can last up to 2 and ½ months in order to use as much money in the FSA.
  • The FSA also allows the policy holder to carry over a maximum of $500 every year that can be carried over to the incoming year.

Employers of policy holders can offer one of these two options. However, it is not possible that they offer both. In fact, it is not even a requirement to offer one of these.

Toward the end of the year of the grace period that is given, the policy holder can lose all the money that remains in the FSA. It is very important that the individual also plans carefully and not allocate any more money in the FSA than he or she thinks can spend within that particular year on expenses such as coinsurance, medicine, copayments and other possible health care expenses.

Another important thing to note about the FSA is that it cannot be used alongside a plan from the Marketplace. The Health Savings Account or the HSA allows the policy holder to cast aside money on pre-tax basis in order to pay health expenses if there are high deductibles in the Marketplace health insurance plans.

Types of FSA

 A number of cafeteria plans can offer two major FSAs that focus primarily on dependent and medical care costs. There are a couple of cafeteria plans that are offered to the other kinds of FSAs. It is important to note that participation in one kind of FSA cannot affect the participation in the other kinds of FSA. However, the funds in FSA can be transferred from one to another.

The most common kind of FSA is utilized to pay for the dental and medical expenses that were not covered by the insurance. These are usually the copayments, deductibles and coinsurance for the health plan of the employees.  As of the 1st of January 2011, medications that are ordered over-the-counter are only allowed when bought with a prescription from the doctor, with the exception of insulin. Medical devices that can be ordered over the counter like crutches, bandages and repair kits for the eyeglasses are also allowed.

Prior to the Affordable Care Act, the IRS has permitted the employers to enact the maximum election for the employees. Affordable Care Act has also amended what is known as Section 125 to state that FSAs cannot let the employees choose the annual election that exceeds the limit that is determined by the IRS. The yearly limit can reach to $2,500 especially for the first year. The IRS can also index the plans in the subsequent years especially for the adjustments in the cost-of-living.

Employers can also opt to limit the annual elections even further. This specific limit can be applied to every employee, even without regarding the status of the employee – if he or she is married or have children or not. The contributions that are non-elective and made by employers which are not subtracted from the wages of the employees are also not added to the limit. An employee who is employed by various and multiple unrelated companies and employers can also opt to reach the limit of each employer plan. The limit also cannot apply to the HAS as well as the health reimbursement arrangements or even the share of the employee on the cost of the sponsored health insurance care that is provided by the employer.

There are also employers who choose to just issue debt cards to employees who are qualified participants of the FSA. These participants can also use their debit cards in order to pay for the eligible expenses because they are part of the FSA. Grocery stores and pharmacies that opt to go for debit cards as mode of payments have the option to not allow transactions when the participants try to pay for the items that they buy which are not qualified under FSA. Other than that, employers should require their employees to show the itemized receipts as proof for every expense that they charged using the debit card. The IRS can also let the employers waive the requirement in the situation that an individual resorts to the debit card at the grocery store or the pharmacy and comply with the procedure that is stated above. The IRS can also let the employer waive this specific requirement when the amount that is charged using the debit card has eventually become a multiple form of co-pay for the benefit of the group insurance plan for health care of that employee. There are also cases wherein the administering firm of the FSA prefers the actual insurance. The EOBs or the Explanations of Benefits can represent the portion of the patient on the medical expenses as well as other required documentation. This is a requirement that has become less and less cumbersome especially when there are more insurers that let the patient look for the EOBs on the websites.

 

Dependent Care FSA

 

FSAs are also established to pay certain expenses in order to care for the dependents especially when the legal guardian is busy at work. This can pertain to child care, especially for children who are below the age of 13. This kind of FSA can also be used for the benefit of children, regardless of the age, who are mentally or physically incapable of taking care of themselves. This also covers adults and senior citizens who are dependent. In addition to this, the individual or individuals who use the funds on the dependent care are regarded as dependents on the federal tax return of the employee. The funds can also not be utilized for summer camps, with the exception of days camps, or for the long-term care of parents who reside somewhere else, aside from the nursing home that is covered by the insurance provider.

 

The FSA for the dependent care is capped federally at the amount of $5,000 for every year and for every household. Spouses can opt for an FSA but the combined amount that they can obtain must not go beyond $5,000. During tax time, each and every withdrawal that are over $5,000 can be taxed.

 

The difference with medical FSAs is that dependent care FSAs are also not funded early on. This means employees do not have access to receive some kind of reimbursement in the exact and full amount from the contribution that is made since day one. Employees only have the option to reimburse up to a particular amount and they can also deduct that during the entire year.

 

If the spouses are married then they can earn the income from the Dependent Care FSA. There are exceptions such as the spouse who does not work is also disabled or currently studying full time. If one spouse earns lower than $5,000 then benefit amount of the FSA is limited to the amount that the spouse earns.

Other FSAs

 There are also FSA plans for sponsored premium and non-employer reimbursements on parking as well as transit reimbursement. The individual account for premium health insurance lets the employee pay for the spouse’s insurance using pre-tax dollars, for as long as there is coverage that is sponsored by a non-employer. This is also considered as individual plan and billed directly to the individual or his or her spouse. Transit and parking accounts also let the employees cover the parking expenses along with the expenses for public transit using pre-tax dollars but only up to specific limits. It may not be as common as the other FSAs listed above but there have also been a number of employers who have opted to offer assistance in any form of adoption through the FSA. An individual cannot also have health care from the FSA if she or he does not have the HDHP or what is also known as the High Deductible Health Plan that comes with the HAS. In situations such as the employee has both the FSA as well as the HDHP along with the HAS, then he or she can be qualified for what is known the LEX or the Limited Expense FSA. This is also known as the Limited Purpose FSAs. These FSAs can be used in reimbursing vision and dental expenses, no matter the deductible stated in the plan as long as it is at the discretion of the employer and the medical expenses that were incurred are eligible and qualified as soon as the deductible has been met and also reimbursed.

Coverage Period

 The coverage of the FSA can end at the time that the plan year ends for just as single plan or when the coverage of a particular individual has also ended. Example is when there is a loss of coverage because the employee has resigned from the position where he is governed by that employer.

This means that the person who is employed by the company during a given period is only covered when he is with the company. He cannot continue his coverage beyond that.