- May 04th, 2009
- John Dillard
- Income Tax Preparation of Corporate & Personal Income Taxes, Virtual CFO, Business/Tax/Financial Consulting, Business Loans/Money Management
- 1 Comments
During this economic times it is wise to consider every tool in the financial toolbox to limit your individual tax bill as much as possible. Health Savings Accounts (HSA’s) are a relative newcomer to the many options available to individual taxpayers to further limit their tax bill. Contributions, other than those from an employer, are deductible on an individual personal income tax return and are able to be deducted, whether or not a taxpayer itemizes deductions. Distributions from an HSA that are incurred and expended to pay qualified medical expenses are not taxable.
A Health Savings Account is a tax exempt trust/custodial account that you set up with an institution that is set up as an eligible qualified HSA trustee to pay/reimburse qualified medical expenses incurred. No permission or authority is required from the IRS to set up an HSA as long as you qualify and work with a qualified trustee, which is most often a bank or insurance company.
Benefits of an HSA.
-You can obtain a tax deduction for qualified expenses, even if you do not itemize.
-Contributions made by an employer to your HSA may be excluded from your gross income.
-Unused contributions remain in your account and can be used in subsequent years, unlike in a Section 125/Cafeteria Plan where they are forfeited if not used in the current calendar year.
-Distributions are tax free as long as used to pay qualified medical expenses.
-HSA’s belong to you and to not an employer and thus they stay with/belong to you regardless of where you work, as long as you otherwise continue to qualify.
To Qualify for an HSA. You must meet all of the following requirements:
-You must be insured under a high deductible health insurance plan.
-You have no other insurance coverage.
-You are not enrolled in Medicare.
-You cannot be claimed as a dependent on another taxpayers return.
Health Savings Accounts are required to only be used in conjunction with a High Deductible Health Plan (HDHP). In general a HDHP has a higher deductible than typical health plans and has a maximum limit on the total of the annual deductible and out-of-pocket medical expenses that you can pay. These out-of-pocket expenses include copayments but do not include monies paid for medical insurance premiums. The limits for the minimum annual deductible amount for 2009 for an individual plan is $1,150 and $2,300 for a family. The 2009 Maximum Annual Deductible and Other Out-of-Pocket expense are $5,800 and $11,600 for an individual and family respectively.
Annual Contribution Limits. The limit on what you can contribute to your HSA depends upon the type of HDHP coverage obtained, your age and dates of eligibility. The 2009 maximum limits you can contribute are $3,000 if you cover yourself only and $5,950 for a family plan.
Utilizing a HSA is a great planning tool to take full legal advantage of tax law to limit your tax bill accordingly. It is widely suggested and encouraged that you utilize your medical insurance lines agent assistance to also assist in setting up your HSA to ensure all of the rules and regulations are followed.
John Dillard is a Christian Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/ (An Atlanta CPA firm) and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and to learn about his ministry. To contact John Dillard CPA (Atlanta Christian Author/Speaker) today call 770. 814.9304 proudly serving Duluth, GA, Gwinnett County and Beyond.
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