HSAs

Proposed changes to Health Savings Accounts (HSAs). Currently, expenses paid for over-the-counter medicine (other than insulin) don’t qualify as medical expenses under HSAs, flexible spending arrangements, and Archer Medical Savings Accounts unless an item is prescribed by a physician. Under a bill approved by the U.S. House of Representatives, nonprescription medicines like allergy medication, aspirin, or pain relievers could be purchased using pretax dollars. The bill would also make other changes to HSAs and medical / health insurance tax breaks.

There’s still time for homeowners to save with green tax credits

The income tax credit for certain energy-efficient home improvements and equipment purchases was extended through 2016 by the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). So, you still have time to save both energy and taxes by making these eco-friendly investments.

What qualifies

The credit is for expenses related to your principal residence. It equals 10% of certain qualified improvement expenses plus 100% of certain other qualified equipment expenses, subject to a maximum overall credit of $500, which is reduced by any credits claimed in earlier years. (Because of this reduction, many people who previously claimed the credit will be ineligible for any further credits in 2016.)

Examples of improvement investments potentially eligible for the 10% of expense credit include:

• Insulation systems that reduce heat loss or gain,

• Metal and asphalt roofs with heat-reduction components that meet Energy Star requirements, and

• Exterior windows (including skylights) and doors that meet Energy Star requirements. These expenditures are subject to a separate $200 credit cap.

Examples of equipment investments potentially eligible for the 100% of expense credit include:

• Qualified central air conditioners; electric heat pumps; electric heat pump water heaters; water heaters that run on natural gas, propane, or oil; and biomass fuel stoves used for heating or hot water, which are subject to a separate $300 credit cap.

• Qualified furnaces and hot water boilers that run on natural gas, propane or oil, which are subject to a separate $150 credit cap.

• Qualified main air circulating fans used in natural gas, propane and oil furnaces, which are subject to a separate $50 credit cap.

Manufacturer certifications required

When claiming the credit, you must keep with your tax records a certification from the manufacturer that the product qualifies. The certification may be found on the product packaging or the manufacturer’s website. Additional rules and limits apply. For more information about these and other green tax breaks for individuals, contact us.

© 2016

HSA + HDHP = Your ideal benefits strategy?

Health Savings Accounts (HSAs) were created as a tax-favored framework to provide health care benefits mainly for small to midsize businesses and the self-employed. So, assuming your company falls into one of these categories, have you considered the strategy of using these accounts with a high-deductible health plan (HDHP)?

Tax benefits

The tax benefits of HSAs are quite favorable and substantial. Eligible individuals can make tax-deductible (as an adjustment to AGI) contributions into HSA accounts. The funds in the account may be invested (somewhat like an IRA), so there’s an opportunity for growth. The earnings inside the HSA are free from federal income tax, and funds withdrawn to pay eligible health care costs are tax-free.

An HSA is a tax-exempt trust or custodial account established exclusively for paying qualified medical expenses of the participant who, for the months for which contributions are made to an HSA, is covered under an HDHP. Consequently, an HSA isn’t insurance; it’s an account, which must be opened with a bank, brokerage firm, or other provider (typically an insurance company). It’s therefore different from a Flexible Spending Account in that it involves an outside provider serving as a custodian or trustee.

Dollar limits

The 2016 maximum contribution and deduction for individual self-only coverage under a high-deductible plan is $3,350, while the comparable amount for family coverage is $6,750. Individuals age 55 or older by the end of 2016 are allowed additional contributions and deductions of $1,000. However, when an individual enrolls in Medicare, contributions cannot be made to an HSA.

For 2016, an HDHP is defined as a health plan with an annual deductible that is not less than $1,300 for self-only coverage and $2,600 for family coverage, and the annual out-of-pocket expenses (including deductibles and co-payments, but not premiums) must not exceed $6,550 for self-only coverage or $13,100 for family coverage.

Worthy of consideration

An HSA with an HDHP is, of course, but one benefits strategy of many. But it’s worth considering. Please call us for help determining whether it would be the right move for your company this year or perhaps in 2017.

© 2016