Heath Savings Accounts Hsas Mean Big Tax Savings

Heath Savings Accounts HSAs Mean Big Tax Savings
Concerned about the​ high cost of​ healthcare? Worried that your insurance doesn’t cover all your costs? Fortunately,​ a​ partial solution may be just around the​ corner . ​
Since January 2004,​ taxpayers have had a​ tax savings tool called Health Savings Accounts,​ or​ HSAs . ​
These HSAs may solve many of​ your healthcare cost problems . ​

How an​ HSA Works
In a​ nutshell,​ HSAs work like this . ​
you​ buy a​ specific type of​ major medical,​ or​ catastrophic coverage,​ insurance called a​ High Deductible Health Plan . ​
This special HSAcompatible insurance is​ also known by the​ acronym HDHP . ​
Then,​ you​ annually contribute up to​ roughly $5,​100 for​ a​ family and​ up to​ $2,​600 for​ an​ individualto a​ special health savings account . ​
Note that slightly higher deductions are available to​ taxpayers over the​ age of​ 55 . ​
Also,​ annual deductions are indexed for​ inflation . ​

How you​ Save Taxes with HSAs
HSAs work because you​ get a​ tax deduction for​ the​ money you​ contribute to​ the​ health savings account . ​
However,​ as​ long you​ spend the​ money in​ the​ account for​ eligible healthcare expenses—pretty much anything reasonable—you arent taxed when you​ withdraw the​ money . ​
Note that HSAs deductions are not limited by taxpayer incomes . ​

In effect,​ the​ HSA makes all or​ most of​ your uncovered healthcare expenses fully deductible . ​
This is​ a​ big deal because for​ most people,​ healthcare expenses are not deductible . ​

Just to​ put the​ value of​ an​ HSA into perspective,​ a​ family can save from $500 to​ as​ much as​ $1750 annually in​ income taxes by using one of​ these accounts . ​
the​ final savings,​ predictably,​ depend on​ family income and​ the​ state where the​ family lives . ​

One other thing . ​
Don’t confuse HSAs with the​ old style Flexible Spending Accounts,​ or​ FSAs . ​
With FSAs,​ you​ lost the​ money you​ didn’t spend by the​ end of​ the​ year . ​
With HSAs,​ you​ don’t lose the​ money . ​
the​ unused balance just carries forward to​ the​ next year . ​

Aren’t Medical Expenses a​ Tax Deduction Anyway?
No,​ not really . ​
for​ most people medical expenses are not a​ tax deduction . ​
Here’s why . ​
Healthcare expenses do count as​ an​ itemized deduction for​ people who don’t use the​ standard deduction . ​
However,​ only the​ portions of​ one’s healthcare costs that exceed 7 . ​
5% of​ adjusted gross income get deducted . ​
That means that most people never get to​ use their healthcare costs as​ tax deductions because their healthcare costs don’t cross the​ 7 . ​
5% threshold . ​

Another Benefit HSAs May Also Save Premiums
HSAs sometimes produce another economic benefit . ​
the​ HDHP insurance itself may save people money because they buy less insurance . ​
This is​ especially true for​ people who aren’t already using major medical insurance . ​

How to​ Set Up a​ Health Savings Account
HSA accounts arent difficult to​ set up . ​
Essentially,​ you​ do just two things . ​
1 Get medical insurance that qualifies as​ an​ HDHP,​ and​ 2 Open an​ HSA account with a​ bank that offers HSAs . ​
Your current medical insurance provider is​ a​ good place to​ start your search for​ HDHP insurance . ​
you​ can also check with your state’s Blue Cross or​ Blue Shield insurer . ​

Three Warnings about HSAs
For what its worth,​ I ​ am now using an​ HSA myself . ​
I ​ got my HDHP from Premera Blue Cross and​ use an​ HSA account from HSA Bank . ​
But let me also share three caveats First,​ obviously,​ you​ never want to​ cancel one insurance policy until youre sure you​ have a​ replacement policy . ​
Second,​ you​ do need to​ be careful about the​ fees associated with the​ HSA bank account,​ so shop around . ​
Third,​ if​ you​ withdraw money from an​ HSA for​ something other than a​ valid medical expense,​ the​ withdrawal is​ taxable and​ subject to​ a​ 10% penalty . ​

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