June202016
Comparison of Tax-Advantaged Funding of Health Care Costs
TAX Chat
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:
| HSA | FSA | HRA | |
| 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 hzemel@berdonllp.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.