Did you know Health Savings Accounts should be on your mind this month? The reason is that the Internal Revenue Service has recently announced inflation-adjusted figures. This applies to the annual contribution limits for HSAs for the calendar year 2019.
At Gavrilov and Company, we want our clients to plan at least 2 years in advance. The reason is that what you do this month could affect what you have next year and what you are able to do the following year. So let’s look at Health Savings Accounts and recent rulings by the IRS.
Heads Up for 2019 Tax Planning for Far-sighted Tax Payers and Health Savings Accounts
Likewise, they issued two more important pieces of information for your Health Savings Accounts plans:
1. The minimum deductible amounts.
2. And maximum out-of-pocket expense amounts for high-deductible health plans.
3. You can see the IRS publication of these facts and figures at the informative online IRS resource.
The Gavrilov & Company Breaks Down the Latest HSA Info
Under Sec. 223 of the tax code, the IRS permits you a deduction if you participate in a high-deductible health plan. This is also called an HDHP. The Tax Squad at Gavrilov & Co wants you to understand and take advantage of this. You are permitted this deduction for contributions to Health Savings Accounts. These accounts are arranged to help pay your medical expenses.
IRS Issues HSA Contribution Limits for 2019
We also want you to be aware that the contribution deduction limit will be subject to an annual inflation adjustment.
Thus, in 2019, the annual limit on deductible contributions to your HSA is $3,500 for individuals with self-only coverage. That’s a $50 increase from 2018. If you have a family HSA, then you are allowed $7,000 for family coverage. You will be getting a $100 increase from 2018. $50 or $100 might not seem like much. But every little bit helps when you are aware of tax-planning.
The New Health Savings Accounts Figures Show Progress in Taxpayer’s Favor
The IRS had recently announced that the “2018 limit for family coverage is $6,900.”
However, the new number of 7,000 was reached. This was after the IRS re-calculated the amount under the new inflation adjustment of the Tax Cuts and Jobs Act of 2017. “And then granted relief for the retroactive change.” If you are curious about the old coverage, you can visit this reliable resource to get all the details.
Are You Eligible To Contribute to an HSA?
An important point about your Health Savings Account Identity is that in order to contribute to an HSA, you must participate in an HDHP.
- An HDHP is a health plan with an annual deductible that is not less than a certain limit each year…
- Also, it is a health plan “for which the annual out-of-pocket expenses, including deductibles, co-payments, and other amounts, but excluding premiums, do not exceed a certain limit each year (Sec. 223(c).”
- Specifically, according to government sources, “The IRS defines a high deductible health plan (HDHP) as any plan with a deductible of at least $1,350 for an individual or $2,700 for a family.”
Important: Know Your Limits
On the other end of the spectrum, the government declares that an HDHP’s total yearly out-of-pocket expenses can’t be more than $6,650 for an individual or $13,300 for a family. This expenditure includes:
- Deductibles.
- Copayments.
- And coinsurance.
(However, This limit doesn’t apply to out-of-network services.)
If you need to figure out whether you qualify or not, then go to the online resource linked in the sentence below. There you can read all the introductory material on the Health Savings Account from the Internal Revenue Service.
The limits on annual deductibles are also subject to annual inflation adjustments.
- For 2019, the lower limit on the annual deductible for an HDHP is $1,350. This is for self-only coverage and $2,700 for family coverage. However, be aware that the IRS did not change either of these figures for 2019.
- The upper limit for out-of-pocket expenses is $6,750 for self-only coverage. And it is $13,500 for family coverage. The IRS increased both of these from 2018, for 2019.
A Little Backstory on Health Savings Accounts
Below are four major programs that give individuals tax advantages to offset healthcare costs:
1. Health Savings Accounts (HSAs).
2. Medical Savings Accounts (Archer MSAs and Medicare Advantage MSAs).
3. Health Flexible Spending Arrangements (FSAs).
4. Health Reimbursement Arrangements (HRAs).
Each of these programs comes with certain rules and regulations.
1. The Health Savings Account: What You Need To Know.
The Gavrilov & Co Tax Squad wants you to know, “An HSA may receive contributions from an eligible individual or any other person.” This includes “an employer or a family member, on behalf of an eligible individual.”
- Contributions, other than employer contributions, are deductible on the eligible individual’s return. (It does not matter if you itemize the deductions.)
- The IRS does not tax the Employer contributions as your income.
- Likewise, the IRS will not tax dollar distributions from an HSA to pay qualified medical expenses.
Are You Concerned About Your Tax Bill in 2019?
2. The Archer Medical Savings Account: (an MSA) This type of account for medical savings is permitted to receive contributions from an eligible individual and his or her employer. However, here’s the catch. They may not both contribute in the same year.
- Contributions by the individual are deductible and it does not matter if the individual itemizes deductions.
- Employer contributions aren’t included in income.
- Distributions from an Archer MSA that are used to pay qualified medical expenses aren’t taxed.
3. The Medicare Advantage MSA: This type of medical savings account is an MSA labeled by Medicare. It is to be used to pay the qualified medical expenses of the account holder.
- First, the account holder must be enrolled in Medicare.
- Contributions can be made only by Medicare because that is the purpose of this account.
- Lastly, like other types of HSAs above, the contributions aren’t included in your income. In other words, if you use MSA dollars to pay qualified medical expenses, they won’t be taxed.
Health FSA and HRA
4. A health FSA: This type of health savings account is permitted to receive contributions from an eligible individual. Likewise, the IRS permits employers to contribute.
- Once again, FSA Contributions aren’t includible in income.
- And of course, the IRS will not tax you for reimbursements from an FSA that are used to pay qualified medical expenses.
5. The HRA: This type of account is set up for contributions from the employer only.
- Remember, employees never contribute to this type of Health Savings Account. However, like the other HSAs above, contributions aren’t included in income.
- Also, similar to other accounts above, the IRS will not tax HRA dollars that are reimbursements for your medical costs. This assumes that you use those dollars to pay qualified medical expenses.
Since the employer funds the plan, any distributions are considered tax deductible. But only to the employer. And finally, the government won’t tax reimbursement dollars received by the employee for genuine healthcare services.
The owners and staff of Gavrilov & Co would be remiss if we did not wish you a happy, healthy and safe Memorial Day Weekend. It is the official opening of the summer season. We hope you enjoy it with family, friends and outdoor activities that refresh the mind, invigorate the body and delight the spirit.