Comparison of Tax-Advantaged Funding of Health Care Costs
06.20.16 | TAX Chat
Health care costs are expensive and continue to climb. Here are a few tax-advantaged ways to pay for these expenses. Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs) all provide opportunities for tax-advantaged funding of health care expenses. The plan attributes are summarized below:
|Owner of Account||The employee/individual owns the account.||The employer owns the account.||The employer owns the account.|
|Annual Contribution Limit for 2016||$3,350 Self-only coverage/$6,750 Family Coverage ($1,000 additional if age 55 or older)||$2,550||No limit|
|Funding made by||Employee (directly or payroll deferral) or Employer or both||Employer or Employee payroll deferral||Must be made by Employer|
|Required accompanying plans||Must be covered by a qualified high-deductible health plan (HDHP)||None
If you have an HSA, your FSA is limited to funding certain permitted medical expenses (HSA compatible plan).
|Generally, must be integrated with a qualified group medical plan.
If you have an HSA, your HRA is limited to funding certain permitted medical expenses (HSA compatible plan).
|Tax savings||Employee payroll deferral – excluded from taxable income, FICA and Medicare tax
Direct employee contribution – deductible above the line.
|Employee payroll deferral – excluded from taxable income, FICA and Medicare tax||Tax free employee benefit|
|Qualified Expenses||Medical, dental, vision, prescription and some over-the-counter drugs. COBRA, retiree medical insurance premiums, Medicare premiums, LTC premiums and expenses.||Medical, dental, vision, prescription and some over-the-counter drugs.||Medical, dental, vision, prescription and some over-the-counter drugs. COBRA, health insurance premiums, Medicare premiums, and LTC premiums.|
|Earnings on Investments||Earnings grow tax free.||No earnings paid.||Generally no earnings paid.|
|Rollover of Unused Funds||Funds rollover year to year.||Up to a $500 rollover at employer’s discretion or the employer may give you a 2 ½ month grace period to incur expenses for the previous year’s contributions||Rollover permitted at employer’s discretion.|
Please contact me at email@example.com or your Berdon advisor with any questions, or to discuss other ways to save taxes on health care expenses.
Hal Zemel, a Tax Principal at Berdon LLP, New York Accountants, has more than 20 years in public accounting and advises businesses in the real estate, service, and manufacturing sectors.