As we transition to a new administration, speculation about changes to health care policy have been front and center. One of the curiously quieter aspects of this national discussion involves potential changes to regulations around health savings accounts or HSAs.
It is not yet clear if HSA regulations are soon to become even more flexible and more valuable, but some signs do point in that direction. What we do know, is that even today their use can result in substantial savings for some individuals and families. With health care costs rising with no end in sight, taking advantage of an HSA can be a no-brainer. Who wouldn’t want a little extra cash in their pocket?
Below, you’ll find a primer on HSAs that will cover the basics. You’ll walk away with a working understanding of what HSAs are, who qualifies for them, when to use them from a strategic perspective, where you can find more detailed information, and why you should consider establishing an HSA to get the most bang for your pre-tax buck.
What are HSAs and why might I want one?
HSAs are a tax-exempt trust (a portable savings account, essentially) you can use to help pay for some of the medical expenses your insurance does not cover. Some employers will invest into the fund on your behalf. If your employer helps fund your account, you can also deduct that amount from your gross income, thereby lowering your total tax burden even further.
For 2017, the annual contribution limit (the total of your contribution and that of your employer) cannot exceed $3400 for an individual or $6750 for a family. If the idea of using up to $6750 of your own pre-tax dollars and/or using your employer’s money to pay for your family’s uncovered medical expenses sounds appealing (and it should), you might want to consider it.
Who qualifies for an HSA?
Individuals with high deductible health care plans (i.e., $1300+ for individuals, $2600+ for families) may establish an HSA either on their own or (more commonly) through their employers. Approximately 25% of employees with employer-sponsored health insurance currently have plans of this type. If you’re a Medicare recipient and/or can be claimed as a dependent on someone else’s taxes, however, you’re out of luck.
When should I use an HSA disbursement?
Generally speaking, if you could deduct the price of an item or service as a medical or dental expense, you can disburse funds from your HSA to pay for it. Detailed guidance on what does and does not qualify as a medical or dental expense can be found in IRS’s Publication 502. You can find the up-to-date specifics as they apply to your 2016 taxes here.
Where can I find detailed information on my specific situation?
The IRS offers a fairly detailed guide to HSAs on their website. Other resources may be available from your employer or your insurance carrier. We at Sander & Associates offer expertise in this complex area. For personalized, professional guidance on how you and your family can best use an HSA, contact us here or give us a call at (786) 787 0388.