If you have a health savings account, the recently passed tax bill has some good news for you. If you don't have one, you might soon, as more employers are utilizing this medical benefit since companies don't have to contribute to them.
You can open a health savings account, or HSA, if you have a medical insurance policy with a high deductible: at least $1,050 for individuals and $2,100 for families. Money placed in the accounts is deductible and can be withdrawn tax free to pay for out-of-pocket medical expenses.
In addition to the tax write off, the money in an HSA is carried over year after year. If you're healthy and don't have to use much of it, it can grow into a nice sized account.
Currently, HSA contributions are limited to the lesser of the plan's deductible or $2,700. For a family, $5,450 is allowed to go itno the account. The recently passed Tax Relief and Health Care Act of 2006 (AKA the tax-break extenders bill) bumps up those amounts. Next year, contribution limits are $2,850 for single coverage, $5,650 for family coverage, even if the plan's deductible is less.
A couple of other enhancements:
- You can make a one-time tax-free transfer of money from a flexible spending account (FSA) or health reimbursement accounts (HRAs) to an HSA. Just make sure your employer allows the transfer, because although it's allowed, companies are required to let you.
- You also can make a one-time tax-free direct transfer of money from an IRA to an HSA. The limit here is up to the HSA annual contribution limit. This means that if you can't afford to fully fund an HSA via contributions, you can do so by moving your retirement money. It's not a bad tax move, since the HSA distributions are tax-free, while money in a traditional IRA is taxed at ordinary income when it's withdrawn.
Joe Kristan over at Roth CPA has more details on the HSA provisions.
Packing up: Well, time to shut this down and start packing the suitcase. After a morning session, my fellow Taxpayer Advocacy Panel members and I will be heading back to our homes. I've learned a lot and will be sharing some of the things I've learned about TAP, our mission and ways the panel has helped make the tax paying and filing process a bit easier if not necessarily less costly. But, hey, we're not miracle workers!
I'll probably be wasted by the time I get back to Austin, so if I don't post tomorrow, don't be worried. I'll be back on Friday!