Tuesday, February 26, 2008

US Tax Law And Health Savings Accounts (HSA)

US Tax Law And Health Savings Accounts (HSA)
As healthcare costs keep rising, the traditional employer
paid healthcare coverage is becoming a thing of the past.
Because of this constant steep increase in healthcare
costs, employers are searching for ways to control costs,
and yet still be able to provide health coverage for their
employees.

As a result, employers are looking to their employees to
take more responsibility for how they use their healthcare.

Health Savings Accounts (HSA) are being offered as an
affordable solution. HSA's have some very friendly tax
advantages. Qualified contributions are tax deductible and
the qualified withdrawals are tax free. At the same time,
they force the taxpayer to be more responsible about how
they spend their healthcare dollars.

Ok so can everyone own an HSA? The answer is no. The most
important limitation is that individuals must be covered by
a qualifying high deductible health plan, also know as
HDHP. Once a taxpayer opens an HAS and the fund has a
balance, the taxpayer may use it for qualified medical
expenses regardless whether the taxpayer remains qualified
to make contributions.

Not everyone can open an HSA. The most important limitation
is that individuals must be covered under a qualifying
"high-deductible" health insurance plan (HDHP) to open an
HSA and make contributions to it. Once an HSA has a
balance, however, it may be used for qualified medical
expenses regardless of whether the individual participant
remains qualified to make contributions.

In addition to requiring participation in a high-deductible
medical plan, individuals contributing to an HSA also
cannot have any disqualifying coverage. Coverage for this
purpose is determined on the first of each month, month to
month. This feature allows an individual the flexibility
even within a single tax year to be qualified to make
contributions in any or all months.

A taxpayer who is enrolled in Medicare Part A or Part B
cannot participate in an HSA because it is a form of
disqualifying coverage. However, if the taxpayer is
eligible for Medicare but has not yet enrolled, he or she
is still eligible to make contributions.

Additionally, the taxpayer cannot have received any medical
benefits from the Veterans Administration for the preceding
three months. Furthermore, active and retired members of
the military cannot make HSA contributions if they receive
benefits under TRICARE, because it does not meet the
minimum annual deductible requirement for an HDHP.

I have very briefly explained here about HAS accounts. I
hope this article has given you some ideas, and I encourage
everyone to further research the advantages and limitations
of HSA accounts. You can realize great savings by properly
managing your healthcare.


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Steve Jackson is a professional income tax preparer with
over twenty years experience, helping clients with their
individual tax situations. Steve offers tax services and if
you file online, he can be here to help you with your tax
situation, and will provide you with free updates during
the year. Contact Steve at http://www.jjackson328.com

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