Understanding The 2018 Tax Changes

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Understanding The 2018 Tax Changes

Feb 6, 2018 Posted by deepak No Comments

President Trump signed the Tax Cuts and Job Acts on December 22, 2017. It slashes the corporate tax rate originally from 35 percent and down to 21 percent the minute 2018 starts. In other words, the highest individual tax rate is now 37 percent and it also cuts the rates of the income tax, eliminates personal exemption and then doubles the standard deduction. Corporate cuts are usually permanent whereas the changes in individual cuts end by 2025. In a nutshell, here is how this new Act changes deductions for elder and child care, business taxes and income taxes.

Income Taxes

* The Act retains the seven income tax brackets. The only difference is that the tax rates are lower. Employees will eventually see these changes reflected in their February 2018 paychecks. The income levels rise every year because of inflation. However, they increase slower compared to the past because the Act is resorting to the “chained consumer price index.” This will eventually move people to higher tax brackets.

* The new Act doubles the standard deduction. Those who are single filers increases the deduction from $6,350 and to $12,000. Those who are Married and also Joint Filers find their tax increasing from $12,700 and reaching $24,000. This means that the over-all 94% of taxpayers get the standard deduction. The National Association of Realtor and National Association of Home Builders are against this. When taxpayers take the standard deduction, only a handful of them would make the most out of the mortgage interest deduction.

* This can lower housing prices. This is why people are now concerned about the real estate market. They think it is currently trapped in a bubble which could burst anytime, therefore resulting to another collapse.

* It eliminates personal exemptions. Before President Trump signed the act, taxpayers are deducted $4,150 from their income every time they claim one dependent. This then results to families with multiple children paying higher taxes regardless the increased standard deduction that the new Act has imposed.

*It eliminates itemized deductions. This covers moving expenses. Only members of the military are exempted from this. This means that individuals paying alimony are no longer deducted for this, whereas those receiving the alimony can. This begins in 2019 for couples that signed the divorce in 2018.

*The new tax code retains the deduction for retirement savings, student loan and charitable contributions.

*It limits the deduction on the mortgage interest for every $750,000. Deductions can no longer be applied on the interest of home equity. Those who currently have mortgage are not affected by this.

Those who pay taxes can subtract to a total of $10,000 on local and state taxes. They have to choose whether the taxes will be on the property taxes, sales taxes or income. Taxpayers in California and New York, both high tax states, are in the losing end here.

The New Act Regarding Medical Expenses

The Act expands the deduction for 2017 and 2018 medical expenses. It lets the taxpayers deduct their medical expenses that range around 7.5 percent and even more of their income. Before this bill, the cutoff for medical expenses was 10 percent for insured individuals who were born after 1952. Obviously, seniors already receive the 7.5 percent cutoff. Statistics show that around 8.8 million people have already used this deduction in 2015.

The Act also repeals the much-discussed Obamacare tax for individuals who do not have health insurance in 2019. Without this mandate, the Congressional Budget Office predicts that around 13 million people will discontinue their plans. Therefore, the government would eventually then be able to save around $338 billion because there is no need to pay for the subsidies. The downside to this is that the costs of health care will increase. This is because fewer people get the preventive care required and needed in order to avoid those unexpected visits to the emergency room. Maine Representative Senator Susan Collins approved this bill because the President promised to reinstate the subsidies to the insurers. This is outlined in the Murray-Alexander bill.

The overall subsidies of $7 billion is reimbursed through lowering the costs for Americans who are within the low-income range. However, the CBO has stated that it will not offset the health care prices that are higher in value and were created by the repealed mandate.

This Act also doubles the exemption of the estate tax down to $11.2 million for the single taxpayers and around $22.4 million for those who filed as couples. This benefits those who are in the top 1 percent of that group. These higher 4,918 tax returns have a total contribution of $17 billion in their taxes. The exemption also reverts the pre-Act levels in the year 2026.

It maintains the Alternative Minimum Tax. It increases exemption from the amount $54,300 to $70,300 for the singles and as for those who filed as joint, this ranges from the amount $84,500 to $109,400. As for the exemptions, the phase out is at the amount of $500,000 for the single taxpayers and $1 million for those who filed as joint. This exemption also reverts to the Act levels of the year 2026.

Elder and Child Care

As for the Child Tax Credit, the Act raises it from the amount $1,000 to $2,000. For parents who do not earn enough in order to pay the taxes, they can claim credit as much as $1,400. It also increases income level at $110,000 to $400,000 for tax filers who are married.

This lets the parents use the 529 savings plans to pay for the tuition in private schools, as well as religious schools with the K-12 program. They can also resort to these funds to pay for the expenses that are acquired when children are home-schooled.

Every non-child dependent is given $500 credit. This assists the families in caring for their elderly parents.

Taxes on Businesses

The New Act decreases the maximum tax rate of corporations from 35 percent down to 21 percent. This is the lowest that it has been since the year 1939. For the longest time, the United States is included in the list of countries with the highest rates around the world. A number of corporations do not pay that much. Therefore, on average, the reasonable and effective rate is around 18 percent. Large corporations employ tax attorneys who assist them in coming up with ways so that they do not have to pay more.

This then raises the standard deduction to the amount of 20 percent for businesses that are referred to as “pass-through.” This deduction is said to end after the year 2025. Those considered to be pass-through businesses are sole proprietorships, S corporations, limited liability companies and partnerships. They also cover hedge funds, real estate companies along with private equity funds. The deductions are then phased out for the service professionals who reach the income amount of $157,500 for singles and as for joint filers, it’s around $315,000.

This New Act sets limitation to the corporations’ ability of deducting the interest expense down to 30 percent of the overall income. Within four years, the income is based on the EBITDA but this also reverts the earnings before the taxes and the interests. This makes it more expensive for the financial firms to borrow some money. The companies will also have less opportunities to issue the bonds and buy their stock back. Stock prices may fall. This limit generates the revenue to also pay for the other tax breaks.

It lets the businesses also deduct the overall costs of the assets that are considered to be depreciable and have this done in one year as opposed to amortizing these through several years. This, however, does not apply to the structures. To qualify, the equipment can be purchased between September 27, 2017 and January 1, 2023.

The New Act also requires the requirements to be stiffened especially on profits that carry interests. Carried interests are usually taxed at the rate of 23.8 percent as opposed to 39.6 percent. The firms are then required to hold these assets for the duration of a year so that they can qualify within the lower rate. The Act also extends this requirement to last up to three years. This may not benefit the hedge funds that have the tendency to continuously trade. It would also not affect private equity funds that are within the assets of five years. This change in taxes could increase the revenue to $1.2 billion.

It also eliminates the corporate AMT. This had a tax rate of 20% that kicked in if the tax credits pushed the effective tax rate of the firm right below that specified level. Under the AMT, these companies do not have the ability to deduct the spending budget for research and development as well as the total investments especially in a low-income neighborhood. By eliminating the corporate AMT, it adds a total of $40 billion to over-all deficit.

The New Bill also advocates the change from the “worldwide” tax system that is currently operating and turn it into a territorial system. Under this, multinationals receive taxes based on the foreign income that they have earned. They also do not have to pay the tax unless the profits are brought home. This results to corporations basing their businesses overseas. When it is set in a territorial system, these businesses are not taxed on the profit that they earned on foreign soil. There are more chances that they will invest this within the United States. This benefits the pharmaceutical as well as the high tech companies, most of all.

It lets the companies repatriate the overall $2.6 trillion that they hold in stockpiles. They only have to pay the tax rate that is usually 15.5 percent once and also 8 percent for the equipment. This repatriation could also raise the yields of the Treasury note. The corporations that hold the most of the cash in the treasury notes usually sell them because the supply that are in excess often send the yields on a higher basis.

Other Benefits of the New Tax Bill

* It lets the oil drilling within the Arctic National Wildlife Refuge. It is estimated to increase this by $1.1 billion in total revenue over a period of 10 years. When drilling this, it may not appear profitable unless it gains $70 per barrel.

* It retains the tax credits for the wind farms and the electric vehicles.

* It also cuts the deduction for the drug research targeted on orphans from 50% and to half which is 25%.

* There are cuts on the taxes of liquor, beer and wine. The Brooking Institute has an estimation that amounts to 1,550 more deaths that are related to alcohol. The studies also discovered that if the alcohol prices are lowered then there are more purchases of this product and therefore results to death tolls being higher.

How It Affects Taxpayers and Individuals

This new tax plan assists businesses, and not individuals. The tax cuts on businesses are permanent whereas the individual cuts have an expiration, and this is 2025. However, the largest private employer in the country, Walmart, has released a statement that they will increase the wages of their employees. They will also use this additional money that they have saved from the tax cuts to divide it in the form of bonuses and then also increase the benefits.

As for individuals, the clear winners are the higher-income families. Those who are within the 20-80 percent of the income range receives a 1.7% increase in their income after tax. Those who are in the 95 to 99 percentile will benefit an increase of 2.2%.

The Tax Policy Center also estimates that the ones in the lowest earning percentile would see their income at a rate of 0.4% higher. As for those who are in the next highest percentile, they are expected to receive 1.2 percentage boost. Those in the next two quintiles can see their income raise by 1.6 to 1.9 percent. The biggest increase goes to those who are earning the most.

The Next Shelter for Wealthy Americans: C Corporations

Jan 29, 2018 Posted by deepak No Comments

Because of the intricacies from the tax code, companies and businesses are encouraged to turn down the traditional kind of corporate business. This is the C corporation. Instead, they are asked to organize what is popularly known as “pass-throughs.” This has also been what is regarded as the norm. These businesses are not taxed at the corporate level but at the bracket of the individual income tax. The incentive for the business to be structured as such is so influential.

The pending reaction of the corporate tax rate form the 35% maximum and down to 20% also flips the equation for a number of taxpayers. It gives the business owners and a couple of wage earners a process to protect their income tax rates and let it reach to a 42.3% high. This is done by becoming C-corporations. The Senate tax bill also includes the rules to put a limitation on the professional’s ability. These professionals are the layers, managers and doctors. They can no longer incorporate and have the label income regarded as a corporate profit. Instead, a business that is non-corporate may also be elected to be taxed at a rate in the corporate level. That election is simple, and it requires a checkbox without even having him a form. There are no required lawyers during the interrogation.

This kind of tax sheltering does not only cost the Treasury a vast and substantial overall fiscal total, it also benefits the one with the most income and the most financially sophisticated Americans that have no influence whatsoever in the total economy. It also does not create jobs.

While there are certain elements of the proposals from the GOP that is an illustration of what may improve the current system in the corporate taxation, this is also the opportunity to shelter what can reduce the revenue and also benefit the high income taxpayers. It also introduces the new costs of inefficiency to the domestic tax system. The way to end these opportunities for the over-all tax arbitrage that very minute is to keep the rich Americans from playing with the tax system and leading it to their advantage. The point is to tax all income, whether it be individual or business, and make the rates effective. Without this approach, lawmakers must at least address that there are loopholes which will exacerbate this new kind of tax sheltering.

What is a Tax Shelter?

 

It is important to note that under the new bill, the payers with the higher income can transform into C corporations.

Under this newly signed bill, the rate of the wage earners will reach a high 42.3%. This includes payroll taxes and income. The highest rate of the income for pass-through businesses, especially when taken into account can also benefit how this is deducted for entrepreneurs of this kind of business. The calculation is looking like it will be 29.6%.

C-corporation shareholders can also pay the 20% corporate tax as well as pay for the dividend of the capital gains taxes on the individual tax returns that reaches up to the 23.8%. Whenever taken in practice, the effective rate on the capital gains have the tendency to be lower than the statutory rate on the capital gains and it becomes lower than the rate because of the shareholders that defer the shares and because there are a number of provisions that also eliminate the tax entirely. Aside to the lower rate, the form for the C corporation also allows that a number of taxpayers are given the ability to deduct the fringe benefits and a number of these are the pass-through business owners that are unable to be deducted, such as the premiums on health insurance and the fringe benefits. These are also used to itemize the deductions such as the paid local and state taxes which are no longer deductible for the individuals. This tax treatment is favorable for those who are earning high wages and owners of pass through businesses because they can turn their income into profits for the corporation.

Aside from this, the capability of the high earners and high-income tax payers to turn their income from a high tax wages and into corporate profits cannot be interrupted. The Senate bill includes provisions that are to limit the ability of the service businesses like those working in the aspects of law, health, engineering and architecture. This is what they do in order to make the most out of the deductions that are available in the pass through businesses. There are no prohibitions that applied to the C corporate businesses. In the 1970s, whenever the top individual income tax rates are significantly higher than the income tax rate of the corporation, there are high-income individuals that incorporate the C-corporations in order to shelter the income from the individual tax rates that are higher than the average. An example is that it can eventually be tax-efficient only for those who have bonds that bear interests in a corporation. This being said, it benefits companies more than individuals. When making the switch from the pass-through kind of business and into the C corporation form, the steps are simple. Today, the pass-through business owners essentially just check on a box on the tax form, specifically Form 8832, and therefore electing themselves into a C-corporation. It is difficult to argue that the bill favors these businesses because entrepreneurs can choose to file under this method so that they can lower their accumulated taxes.

Tax sheltering will also cost the Treasury a significant amount of the money. IT also benefits the most financially sophisticated and highest income earning Americans in methods that cannot do anything in order to help the total economy so that jobs can be created.

The magnitude of the total breakfast is expected to be quite large. In 2014, about 75% of the income from the pass-through businesses can total around $674 billion that is accrued to the taxpayers that are facing a different bracket rate, which is 25% above the norm. Meanwhile, 50% of the businesses that are pass-through also total to an amount of $464 billion that is connected to the owners. In the top brackets, a large share of the businesses can also benefit the C corporations in order to pay taxes rate that are much lower.

Wage Earning Corporate Managers will also benefit from the new bill

It is most likely that the large share of income and wages that are paid to the corporate managers are in a switch form. Take into consideration, individuals that are their own entrepreneurs because they have S-corporations and C-corporations. Closely held are the corporations with the small number of the shareholders. The stock is also publicly traded and once the managers and the owners file the corporate tax return then this is generally subject to the legal protections as that of the C-corporations. The income is then pass-through the pro-rata along with its shareholders.

Nowadays, the individuals are also generally elected so that the corporation’s income can be received in the kind of wages that let them be on the top rating. It is also well combined on the corporate profits. In 2013, total wages can also pay to the C-corporation representatives a total amount of $225. The majority of this compensation is also paid so that the managers and owners of small businesses are closely held. Aside from this, the wages of the S-corporation businesses are also paid to the individuals who are both employees and owners. When combined, these S-corporation wages equate to around 57% of the aggregate S-corporation that the business can gain the income. Around 70% of this officer compensation of the S-corporations are also accrued to the top individuals. The 1% of the income distribution can also have quite a great incentive and then shift the form of this income once the business rates of the corporation can also decline in a substantial connected to the rate of the labor income. The very cases where this exists, the manager is the owner and they decide to switch this corporation to receiving the income and then turning this into profits and wages because it is more straight forward. The higher income workers can also get in on the deal. It is so easy to declare that you are your own boss and no longer an employee. You are a person that sells your own services.

“Tax Shelter” is a pejorative term because it is a legal way to reduce liabilities in taxes. Someone who believes that this is a feature of the tax code gives the taxpayers the very right to deduct the taxes. It may not be a good idea, but it is the very label for a shelter. Most people regard this as some kind of incentive on the tax code of a shelter.

Corporations and individuals can reduce the final tax liabilities and allocate the proportion of the incomes in the tax shelters. They are also often classically connected with the high earners and established corporations and wealthy households that are also connected to the Swiss bank. Tax shelters are more widespread and easily accessible than what the suggestion implies. Take for example, the employer-sponsored of 401(k) programs. This individual retirement accounts are also accessible and widespread that the individuals can look into this as some kind of “shelter” for their income from taxation.

Whenever Sheltering Becomes Too Abusive

The IRS or the Internal Revenue Service can also make a distinction between the sheltering that encompasses the legal forms of deducting the tax liability and also serves as the aforementioned in the retirement plans. It may be abusive in the tax sheltering but this is also illegal. One example of the abusive tax-sheltering scheme which leads to the use of trusts that can reduce the liability by over-claiming the deductions are also hiding the known assets from the taxation.

Effects

Tax shelters are also beneficial whenever considered at the firm and individual levels. There are also some tax shelters can also be desirable regarding the distortionary effects that have the burden so substantive and also placed on the tax system. It has been through the tax base erosion. The erosion of the tax base is connected to the loss that has been accepted simply for the large and benefitting tax shelters. There are also shelters that gain little to even no benefits and this are very much harmful. Take for example, the individuals and firms that cannot store their wealth in the offshore accounts because they are usually found in countries that have tax rates and laws that are more advantageous than what is in the United States. In fact, around $1,200 billion of wealth has been stored in the offshore tax havens in 2014 and this results to a loss in tax revenue that is $35 billion.

Aside from eroding the tax base, the tax shelters are also the host of other effects that are considered to be quite distortionary. For example, the corporate wealth that is stored offshore in the tax havens can also be repatriated to the United States even without obtaining the tax burden that the corporation is trying to steer clear off. This lack of capability to get the wealth that can drive the firms to find debt financing can also depress the valuation on the market.

Tax Havens

“Tax havens” are specific means of tax sheltering. The tax haven is also serving as a locality – that can be the very much a region, a state or a country. It has also turned into a personal income tax rate or a lower corporate that the tax havens can also have the other properties that may store the income that is more desirable and also become the secrecy of the bank and also look into the incorporation. This is very much the reason why it has to be made clear that the new bill actually contains glitches that benefit corporations more than individuals.

Restructuring State and Local Taxes to Maintain Deductibility

Jan 22, 2018 Posted by deepak No Comments

Tax reform is expected to eliminate the local and state deductions. The reason behind this is that it encourages the local and state government to increase the taxes. If tax reform manages to eliminate the deduction, then the local and state governments will be facing a bigger and stronger pressure in keeping the taxes low.

Violating Neutrality that is Appropriate in Some Circumstances

The sole purpose of this tax reform is to liberate the economy in order to gain more strength by setting the neutral tax base and is lowered in the tax rates in a revenue-neutral manner. This can also improve the incentives for businesses as well as families along with entrepreneurs and investors that can engage in the activity.

Neutrality’s principle keeps the taxes in such a way that it does not influence the decisions of the taxpayers on an economic basis. By maximizing the economic growth, the tax reform can institute this in the neutral tax code in a reasonable level. Nonetheless, there are still some instances that violate the neutrality and is still regarded as appropriate.

Whenever there is an anomaly that is historically unavoidable, then this case is exclusive for the employer-provided health insurance. This exclusion is also a historical artifact that dates back to the 2nd World War. Because by eliminating this, there are other reforms that can create the major disruptions that are apparent in the health insurance market. There are also some sensible tax reform plans that can also retain the exclusion and also provide the credits for the families so that they can obtain the health insurance.

A similar instance is when the beneficiary of the specific policy justifies that it is more harmful than neutral. Earned Income Tax Credit is retained so that families that are in the low-income bracket can improve their situation.

Note that tax reforms must eliminate the neutral policies containing negative consequences and intention. When this is done, then neutrality will be eliminated.

State and Local Tax Deduction is Neutral and Must Be Eliminated

The tax code lets the taxpayers deduct certain local and state taxes that include income taxes and sales taxes specifically for the residents of states. These go without the income tax, personal property taxes and real estate taxes. Local and state income taxes also make up around 95% of all the local and state deductions.

According to the tax policy theory, the reductions are neutral because taxpayers may not have to pay on the income tax that they really do not save or spend. The local and state taxes also deprive the taxpayers allow the ability to do both with the taxes and the income that they can claim.

However, the downside to the theory of the tax policy usually does not keep to what is known information on the economic reality. When it comes to the local and state tax deduction is the harmful negative consequences. It also creates the benefit of ensuring the taxpayers that do not pay income tax the reality that they cannot save or spend.

The deduction from this results to another circumstance that warrant and violates the neutrality. This is the very reason why tax reform must eliminate it.

Deduction Encourages the Local and State Governments to Raise the Taxes

The harmful and unintended consequences of deduction is that it influences the local and state governments to increase their taxes. However, higher taxes also let the local and state governments grow larger because there is a need to spend the maximum amount of revenue that is possible for them to collect.

The deduction also encourages the local and state governments that can raise their taxes because it is possible to transfer some of their tax burden percentage from the residents and to the federal government. For example, every dollar that the state taxes one family that pays the 33% federal marginal tax rate, the family can also effectively pay a percentage. Specifically, this is $0.67 of the state tax. The deduction on the federal taxes of the family reduces the tax bill by $0.33.

This deduction in the mentioned price of the state and its required taxes also influences the states to increase their taxes higher. This is because taxpayers can also offer a lower amount of resistance because they really do not pay the full amount of the higher taxes. Taxpayers are also more willing in accepting the higher taxes due to the deduction that the consumers are willing to purchase a service or product especially when the prices decrease.

However, there is no connected reduction in the federal government when it comes to the revenue from the deduction. The federal government does and can borrow freely. This is why Congress spends amounts of tax revenue that is irrespective. The local and state governments have also less latitude in terms of borrowing in order to spend more that is closely matched to the tax receipts.

If this deduction is removed from the tax reform, then the overall amount that the taxpayers pay in terms of taxes are least likely to not change. Tax reform should be in the form of revenue and distributed in a neutral setting. This means that the taxpayers must pay the same amount of federal taxes like they did before. However, the federal taxes can no longer reduce this burden effectively on their local and state taxes.

The taxpayers are now faced with shouldering the burden of local and state taxes. Taxpayers are also more likely to reduce the existing tax burden. By combining these effects, they can restrain the tax burdens on both the local and state government level.

States with the Highest Taxes Would See the Greatest Pressure

The municipalities and states with the highest taxes have the biggest pressure in lowering the taxes of their residents. Taxpayers that are in states with high taxes also tend to have higher incomes. For example, based on a study conducted by the Tax Foundation, Connecticut, New York as well as New Jersey have the highest local and state taxes and burdens. They are also ranked in the top five in regard to the per capita income. The number of the high-tax states usually have relatively high per-capita compensation.

Those who are paying higher income taxes can also claim the deduction in the local and state taxes level. According to the IRS, the taxpayers who earn around $100,000 due to the claim can get a 76% deduction.

Data shows that tax payers who are residing in states with high taxes usually already pay hefty amounts on the local and state taxes. There is also a burden that is reduced through the deduction. If tax reform manages to eliminate the deduction, then the taxpayers can see a big increase in both their local and state taxes. They can also put pressure on these government ordinances in order to stop the increase in taxes and allow them to apply pressure on them so that higher taxes can be reduced.

Lower Rates are an Added Bonus

By eliminating the local and state tax deduction can only be done when it is within the context of the tax reform as an overhaul. Congress must not eliminate this without offsetting the changes in the taxes. In order for them to do this, then there would be unnecessary increases in taxes.

Eliminating the deduction in the total revenue whether it be in a neutral tax reform can also allow the marginal tax rates to be lowered for families. The local and state deduction can also reduce the taxes to $1 trillion over 10 years. Revenue can also be provided for the substantial and additional reduction in the rates. If the rates are lower, then it also enhances the growth-promoting potential of the reforms in taxes. This is also an added bonus when the deduction is eliminated.

Eliminating State and Local Tax Deduction in Order to Pay for Tax Cuts

The tax plan that President Trump and the congressional Republican ends the federal deduction that is allotted to SALT or the state and local taxes. This lets the taxpayers itemize their deductions on the income taxes from a federal level and also deduct the local and state taxes. There are proponents that argue that when this deduction ended, it will not hurt the middle and low-income households because the direct benefits are targeted to the higher-income filters. By eliminating this deduction, the federal income tax will eventually become more progressive. However, it also ignores that the actual tradeoff of the GOP tax plan is proposed. This eliminated the SALT deduction and then resorts to the revenue so that the marginal income from these tax rate cuts can be bad for most Americans, particularly those who are considered to be middle and low class.

The first thing to know is that the rate cuts in the tax plan tend to be tilted especially concerning the SALT deduction. This is the reason why the year 2027, 80% of the net tax cuts are shifted to the top 1 percent of the Americans. This is when they claim that the key elements of the current plan will completely take in effect. The Tax Policy Center has estimated this.

Secondly, the SALT deduction assists the local and states funding especially in the public services. They provide widely shared benefits. Because this deduction is of a high income and a number of people are willing to support the taxes on the local and state level, then repealing this deduction can definitely make it harder for both the locality and the state.

When the deduction is repealed and rejected, then it is harder for the localities and the states to tackle the budget strains. It raises the sufficient revenues especially in the coming years for the government to fund higher education, including K12, and above all, health care. In order to balance the budgets with revenue that is insufficient, the policy maker of the state likely makes cuts in particular services that would make it most felt. It would also push the costs to the low and middle-income people, making the local and state tax systems and make it more regressive in the over-all setting.

States and localities can also respond when raising the fees and taxes that fall heavily on the residents who are within the higher-income bracket. It would also push the costs into the low-and middle-income individuals and make the local and state tax systems more regressive than it already is.

The proposal to end SALT deduction and make it harder for localities and states to fund the current programs that they have in mind allowed the President and the Republicans to come up with a proposal of a 10-year budget that shifts the substantial and new costs to the states. It also sharply cuts the Medicaid and other funding of the health insurance and potential cuts the federal support for the local and state services such as transportation, low income housing, education and environmental protection.

Responding to the criticism of the Republican representatives of Congress who also represent varied states could be a particularly difficult approach if the intent is to end the SALT deduction. GOP leaders have considered a number of compromises that would partly, as opposed to entirely, end it. These also include capping the deduction and then ending that for the income taxes and not the real estate taxes. Letting the filers take the SALT deduction or another like interest deduction and home mortgage. Both cannot be taken. Partially ending this new deduction process is particularly harmful for middle and low-income Americans. However, since the states and localities will eventually weaken, then it is time to increase the adequate revenues.

Trump administration official pointed the estimates that show most of the deductions from SALT on the federal tax benefits go to people earning $100,000. Higher income filers can also benefit more depending on the deduction because these are likely to be itemized, claim the higher amounts of the deductions, which also include the SALT, and resort to higher federal tax rates.

Lifetime Learning Credit at a Glance

Dec 6, 2017 Posted by deepak No Comments

Due to the rising cost of further education, there are taxpayers who wish that it is possible to offset their school expenses. There is also the option to get the LLC on the federal income tax return. This credit can reduce the tax bill on the dollar-for-dollar basis is the portion of the fees and tuition that the individual pays for themselves.

Lifetime Learning Credit is the qualified tuition as well as related expenses that have been paid for the benefit of eligible students who are enrolled in an educational institution that is deemed eligible. This credit assists students in paying for professional degree courses along with graduate and undergraduate programs. These courses once acquired can improve the job skills of the individual. It is important to take note that there is no limit on the duration of the study and claiming the credit. It amounts to $2,000 for every tax return.

The LLC is provided and made available to tax payers. This credit can be claimed by any student or a family who pays taxes, as long as the student is attending classes at least on a part time basis. The credit is then claimed for the educational costs that have been incurred by the student.

Critics often complained that there are restrictions and complexity when it comes to the eligibility and qualifications. It makes the actual benefits for every student pursuing their post-secondary studies much lower than what is regarded as the theoretical maximum. Even with higher education and tax credits, there is still a remainder of tax-disadvantaged individuals compared to those who turn to these investments.

Who claims the LLC?

 In order to claim LLC, there are three requirements:

The dependent is willing to pay for the qualified education expenses toward higher learning.

  1. The dependent can pay the education expenses for a student who is eligible and is enrolled at an educational institution that is also qualified.
  2. The dependent is listed on a tax return.

 Who are the eligible students for the Lifetime Learning Credit?

 In order for the student to qualify for the LLC, he or she must:

  • Be listed, signed up on enrolled in taking courses at an educational institution that is deemed eligible.
  • Taking higher education classes or courses in order to get a degree or an education that is recognized in order for the individual to learn more and also improve the skills required for the job.
  • Be enrolled for one academic period at least and in the commencement of the current tax year.

Take note that academic period means semesters, quarters or trimesters, depending on the school session of the eligible educational institution. The school determines how the academic periods would be. Schools that resort to credit hours and not academic terms, the payment process is treated as if it were an academic period.

Calculating Lifetime Learning Credit

 The individual can include the fees, tuition and any supplies or books that are a requirement in purchasing directly from the educational institution. This also depends if this is an enrollment or a condition. If the professor suggests and recommends that they purchase textbooks and can enroll in the class even without this, this is not included in the credit.

Filling Out Form 8863

 By the end of the tax year, educational institutions must send them Form 1098-T that also includes the eligible costs. In order for individuals to claim this Lifetime Learning Credit, then these figures must be entered on Form 8863. When this form is prepared, the individual must only complete parts 3 along with parts 6 and then calculate this credit amount that they are eligible for. By transferring this credit amount to the income tax return then make sure that this is attached to Form 8863 before this is sent to the IRS.

TurboTax prepares the calculation for individuals to make filling up the form easier. By answering simple questions regarding the individual’s education expenses, the form can be completed in no time.

No Double Benefits Allowed

 It is not possible for the taxpayer to claim the Lifetime Learning Credit as well as a tuition deduction when he or she has already claimed the American Opportunity credit. The IRS only lets tax reduction for every student every year. However, before the individual can claim the LLC, they should also determine whether they are qualified and eligible enough for the American Opportunity Credit.

For a number of students who are taking four years of further studies, the American Opportunity credit offers more tax savings because the minimum credit that they can get is $2,500. TurboTax is also another tool that can be used to calculate this. It can also determine which credit would give the individual the biggest benefit.

What are the Income Limits for LLC?

 In order to claim the complete credit, the modified adjusted gross income or the MAGI must also be around $65,000 or the below. It can also be $131,000 or less if the individual is married and is also filing jointly.

  • If the MAGI ranges between $55,000 and $65,000. This is between $111,000 but also below $131,000 for couples who are married and filing jointly).
  • If the MAGI is beyond $65,000, the individual is not eligible for Lifetime Learning Credit.

The Modified Adjust Gross Income is the amount of the Adjusted Gross Income that appears on the tax return. This is located on Form 1040A which is the AGI on line 22. This is similar to MAGI. IF the individual files the Form 1040, then the AGI can be found on line 38. It also includes the following:

  • Foreign housing exclusion
  • Income that is excluded from the official residents from Puerto Rico or American Samoa
  • Foreign earned income that is excluded
  • Foreign housing deduction

If the adjusted gross income must be adjusted further in order to locate the MAGI, there are worksheets that can assist the individual to do so.

How to Claim Lifetime Learning Credit

 Usually, students receive the Tuition Statement or what is called Form 1098-T by January 31. This very statement helps in figuring out how much the student gets credit from LLC. The form then has the amount listed on either Box 1 or Box 2 to show that the amounts have been billed or received for the duration of that tax year. However, this amount cannot be the very amount that the individual has access to or can claim.

How Much Is Lifetime Learning Credit Worth?

 The usual amount of the LLC is 20% of $10,000 that is first earned is directed to the qualified education costs. It can also be the maximum of every $2,000 for each return. Take note that Lifetime Learning Credit cannot be refunded. Individuals can also turn to the credit to use this as a form of tax payment that they owe. However, they cannot receive the credit as a form of refund.

Qualifying Expenses

 The qualified tuition as well as the related expenses is also defined as the fees and tuitions that have been paid by the individual at most universities and colleges for the enrollment and attendance of the taxpayer. These expenses that qualify do not include athletic fees, room and board expenses, insurance costs and student activity fees.

Limitations

 The LLC has limitations. A taxpayer cannot have both the Lifetime Learning Credit and the Hope Credit for one student in a given year. The credit is also subject to limitations that have been designed and reserved in order to benefit the low to moderate income taxpayers. The credit is also gradually phased out when the taxpayer’s MAGI or modified adjusted gross income goes beyond $55,000. Those numbers also exceed $65,000. These numbers are also increased for those who file and amount between $110,000 and $130,000.

Tax Credits and Tax Deductions

 As a form of quick refresher, tax credits have a tendency to gain more benefit than deductions because it also reduces that tax liability on a dollar to dollar basis. Deductions, as opposed to tax credits, can reduce the amount of the individual’s income that is subjected to taxes.

Here is a situation. If the individual is eligible for $2,000 tax, then there is a deduction to a $2,000 from what the individual owes the IRS. This then saves the individual $2,000. If the student gets a deduction, he or she can also get an exempt in the amount from the income that is generated in the taxes. If the tax rate is effective at 25%, then the deduction can also translate to $500 as a form of tax savings. It is also possible for the individual to claim the deductions and the credits as long as they are eligible. The more rack up, then the less tax that they can pay.

 

Breaking Down the Lifetime Learning Credit

 

The IRS also provides tax breaks for students. An example is the Lifetime Learning Credit. If the individual claims this, then he or she can get it to $2,000 that is on the taxes for that year. Specifically, credits are calculated to 20%. This is from the first $10,000 that they incur in related expenses along with the qualified tuition. These related expenses incur supplies, books, equipment for studies and mandatory student fees.

 

Make the Most out of the Lifetime Learning Credit

 Any taxpayer who has already paid for the educational expenses for the duration of the year can get a breakthrough the LLC. There may be some strict guidelines as well as rules on how to go about it, but the individual can definitely explore this in order to get the best deal out of his money. It also means that it is possible to reduce the amount that is owed on taxes and even amount to $2,000 in the process.

We recommend consulting with a professional to check all the options and then choose the best that fits the situation of the taxpayer. These offerings from the government definitely cushion the blow of all the tuition costs and can also assist in paying the individual for their education or that of their child’s.

Lifetime Learning Credit Facts

Remember that when calculating the amount of the Lifetime Learning Credit, grants, employer reimbursements and scholarships are deducted from the amount, and then whatever is left is calculated. This is done in order for the IRS to know how much to give to the individual.

Paying for 2 or More Post Secondary Students

 The LLC has a strict rule of one for every household tax credit. If the individual pays for more than a single student who is attending post-secondary education, then the maximum amount for this calculation remains at $10,000 despite the total cost. If the taxpayer is paying for the education of the dependent, then he or she cannot claim the expenses under that particular tax credit.

Income Phaseouts

 The LLC sometimes go through what is regarded as the phase-out range. This means that the taxpayer has a MAGI or what is known as the Modified Adjusted Gross Income. The IRS tool can also confirm the eligibility of this amount. If it is minimum or in excess of the phase out amount, then the taxpayer cannot claim the tax credit.

Forms Needed to File for Tax Credit

 In order to claim the tax credit, the individual must have a Form 1098-T. This shows the amount that is billed and also received for the tuition. This is the form that must be filled out in order for the individual to claim the credit and then also attach the tax forms that the individual files.

Other educational tax credits to consider

 If the individual is not eligible to claim Lifetime Learning Credit on taxes, he or she can still check if she is eligible for the other educational tax credits such as Fees Deduction and American Opportunity Credit. The individual must do as much research as possible in order to lessen the fee that they would have to shoulder and take out of their own pockets. As long as they are eligible for that scholarship, grant or loan, they should go for it.

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.

Everything Everyone Must Know About Medicare

Oct 10, 2017 Posted by deepak No Comments

Medicare is the single payer and social insurance health policy program in the national setting that is administered by the federal government. This has been around since 1966. It is also currently using 30 to 50 privately owned insurance companies all over the United States and is also under contract in the administration.

The Medicare in the US is funded by payroll taxes, surtaxes, and premium from the beneficiaries as well as the general revenue. It also provides the health insurance for Americans who are also over the age of 65 and are 65 years old, as long as they have worked and paid the system through the deductions in their payroll in the form of taxes. Medicare also offers health insurance to the young generation who have disability status as long as it is determined by the SSA or the Social Security Administration. They also consider the individuals who are suffering the end stages of renal diseases as well as the end stages of amyotrophic lateral sclerosis.

On average, the health policy Medicare covers half of health care plan policies and charges for those who have been enrolled. These enrollees and participants must also cover the remaining costs using their supplemental insurance or their separate insurance. There are others who even get the payments fresh from their pockets. These costs also vary and depend on the total of the health care policy that the enrollee from the Medicare needs. There might also be costs of the services that have been uncovered. For example, for the long-term policies, these include the hearing, dental as well as vision care. These also include insurance premiums that are supplemental.

It is important to know that Medicare has four Parts. Part A covers the hospice and hospital services and costs. Part B covers the costs for the outpatient services. Part D is the portion that covers the prescription drugs that are self-administered. Part C serves as the alternative to all the other parts that are allowed to experiment with structured plans that are set up differently which also reduces the costs to the government. This lets patients decide which plans to choose and they usually opt for one that has the most benefits.

History of Medicare

 Medicare has always been known as Medicare. This was the original name given to the program that has provided medical care for different families of the people who were serving in the military. They were part of the military and members of the Dependent’s Medical Care Act. This was passed in Congress in 1956. It was President Eisenhower who held the very first White House Conference on the topic of Aging. This was in January 1961. This was also the time when the program for health care that would provide social security benefits was proposed. In July 1965, when Lyndon Johnson was the president, the Congress has enacted under the benefits of Medicare as stated in Title XVIII and stated in the Social Security Act. It also provided the health insurance coverage and policies to individuals aged 65 and even older, no matter how much they earn and their medical history. Johnson then signed the bill and it became a law on July 30, 1965. This was done at the Presidential Library named after Harry S. Truman in Independence, Missouri. The first recipients of the said program were Former President Truman along with his wife, the former First Lady named Bess Truman.

Before Medicare was created, around 60% of individuals who were over the age of 65 had access to health insurance. The coverage, unfortunately, was often unaffordable and unavailable to most, simply because the older individuals paid more than thrice as much for the younger people who had health insurance. Many of this younger group have become eligible for both Medicaid and Medicare because the law was passed and this gave them the benefit.

In 1966 Medicare combatted the racial integration of many people who were in the waiting room. They also promoted desegregation in hospital floors as well as physician practices and made sure that any race is equal whenever they made payments to their health care issuers and providers.

Medicare has been operating for almost half a century and it has gone through several changes. For example, since 1965, the provisions of Medicare have already expanded and included benefits for physical, chiropractic therapy and speech in 1972. Medicare also added the beneficiaries to opt and pay for the health maintenance in the 1980s. Through the years, Congress has already expanded the Medicare eligibility to younger individuals who have been diagnosed with permanent disabilities and also received the SSDI or the Social Security Disability Insurance payments. Those who have also been diagnosed with ESRD or the end-stage renal disease are also eligible for this.

In the 1980s, the association of Medicare with HMOs has begun and it was formalized under the presidency of Bill Clinton. It started in 1997 in the form of Part C of Medicare. In 2003, under the presidency of George W Bush, the program under Medicare that covered almost every drug was submitted to the congress and was passed as the bill. It was also taken in effect in Part D of Medicare.

In the year of 1982, the government has also added the benefits to hospice in order to assist the elder policy holders but only on a temporary basis. It became permanent in 1984. Congress has also expanded this further in 2001 to include the younger individuals with Lou Gehrig’s disease, also known as ALS or the scientific name being amyotrophic lateral sclerosis.

Administration of Medicare

 The CMS or the Centers for both Medicare as well as Medicaid Services is the component of the HHS or the Department of Health and Human Services that also administers Medicaid, Medicare, CHIP which is also the Children’s Health Insurance Program, CLIA and Clinical Laboratory Improvement Amendments and also parts of the ACA or the Affordable Care Act. Along with the Department of Treasury and Department of Labor, CMS also looks into the implementation of the insurance reform and the provisions on the Accountability Act of 1996 which is Health Insurance Portability. This is also known as HIPAA. Most aspects and parts of the PPACA or the Patient Protection and Affordable Act. The SSA and the Social Security Administration is also responsible in determining the eligibility for Medicare, payment and eligibility for Extra Help as well as the Low Income Subsidy Payments that are related to the Part D of Medicare. It also collects the payments that are premium for the program that Medicare conducts.

The Chief Actuary of the CMS is also responsible in providing the necessary cost projections and accounting information to the Trustees of the Medicare Board. It is essential in assisting them and also assessing the financial care and health of the Medicare program. The Board is also required by the law to give out annual reports regarding the financial status of the Trust Funds of the Medicare. Those reports are also required to contain the actuarial opinion statement from the Chief Actuary.

Since Medicare programs started, CMS has always been the institution that was contracted with the insurance companies that are privately owned in order to operate the intermediaries between the medical providers and the government to be responsible for administering Part B as well as Part A benefits. The processes that are contracted also include the claims and the processing payment along with clinician enrollment, call center services as well as fraud investigation. In 1997, other insurance and policy plan companies started administering Part C. In 2005, other insurance plans started administering Part D.

The RUC or the Relative Value Update Committee or what is also known as the Specialty Society Relative Value Scale Update Committee is composed of a group of physicians that are associated with the AMA or the American Medical Association. This institution advises the policy holders as well as the government regarding the pay standards for the insurance plan of Medicare as well as the procedures that patients should be performed by professionals as well as doctors under Part B of Medicare. A similar yet difference CMS system that also determines the rates that are paid for hospitals along with acute care. This also includes nursing facilities that are under Part A of Medicare.

Financing of Medicare

 Medicare has also several sources where it gets its finances. The inpatient under the portion Part A can be admitted in skilled nursing and hospital coverage and this is largely funded from 2.9% of the revenue and payroll tax. The law also provided a maximum amount when it comes to the compensation of the Medicare tax as well as its being imposed every year. The social Security tax also works in the similar way. On January 1, 1994, the government removed the compensation limit. Employees who are also self-employed are required to pay the full 2.9% on the net earnings of the self-employed individual because they are for the employer as well as the employee. They can also deduct half of the taxes from their income through calculating the income tax.

Starting 2013, the portion of Part A and its taxes from the earned income has exceeded $200,000 for every individual plan. As for married couples that filed jointly, this reached to $250,000. It also rose an additional 3.8% so that the portion of the subsidies can also be paid and mandated by the PPACA.

Parts D as well as Parts B are funded partially by the premiums that have been paid by the Medicare enrollees and these are also considered as the general revenue fund. In 2006, Medicare started adding surtax on the premium of Part B. This was targeted to seniors who earned a higher income in order to fund Part D partially. In the PPACA legislation of the income tax year 2010, Medicare added surtax to the premium portion of Part D and also targeted these to the seniors who were earning lots of income. This is also conducted so that the PPACA can be partially funded along with the beneficiaries from Part B and subject to the double surtax. There is a double amount so that it can also partially fund PPACA.

Parts A, B and D all use trust funds that are separate from one another so that there can be a reimbursement of both the receipt and disbursement of the funds that are mentioned. Part C utilizes all these trusts funds in proportion to one another so that it can be determined by the CMS and reflect that all the beneficiaries of Part C are complete in the full parts of Part A and Part B. Medicare as well as the medical needs for each capita are regarded as fee for service or what is also known as FFS.

Medicare and its spending amounted to 15% of the whole federal spending of the United States. Research all show that this can even exceed 17% by the year 2020.

The retirement of individuals who are called the Baby Boom generation is expected to increase its enrollment by 2030 and reached up to 80 million because that was how the number of workers who are enrolled in the program has declined. The figures dropped from 3.7 and to a low of 2.4. There are the rising and total health care costs that also pose the financial challenges that are substantial to the program. Medicare spending is also projected to even get higher and reach $1 trillion by the year 2020.

It is important to note that for every three dollars, one dollar is spent on Medicare as part of the cost-reduction program. The cost reduction is also influenced by the various factors that include the reduction in unnecessary and inappropriate care through the evidence-based practices of evaluation along with reducing the total amount of duplicative health care. The cost reduction can also be affected by the medical errors that are done when administrative agency increases and the development of clinical guidelines reach the quality standards