The News Herald (Willoughby, OH)
Study forecasts luxury sales to plunge 23%
A study shows sales of luxury apparel, jewelry and beauty products may plunge by nearly a quarter this year.
Health care has been a primar y topic of discussion of 2020 as the coronavirus pandemic continues to grip our nation.
The cost of health care continues to rise as many employers are again facing double digit premium increases. Employers are continually looking for ways to save money in this ever-increasing cost.
From joining with other employers in a multiple employer MEWA plan to going to a higher deductible plan, the effort by companies to contain rising health care costs is being felt by everyone.
One of the techniques that may afford a tax savings opportunity is a health savings account.
A health savings account is a savings account specifically for medical expense purposes that has tax savings opportunities.
To contribute to an HSA, an individual must be enrolled in a high deductible health insurance plan. The funds deposited into an HAS reduce the taxable income of the participant and any investment earnings are exempt from federal taxes.
What is different from a flexible spending account is that the funds roll over and can accumulate from one year to next and are not a use it or lose it type of plan.
HSA accounts are also owned by the individual themselves and if they leave the employment of an employer sponsored HSA, the employee continues to retain control over the account.
HSA contributions are limited to those taxpayers that are covered by a high deductible health insurance plan.
A high deductible plan is required to have a minimum deductible of $1,400 for individual coverage and $2,800 for family coverage and a maximum deductible of $8,150 for self-only coverage and $16,300 for family coverage. Coverage under Medicare would preclude a taxpayer from contributing to an HSA.
Contributions can be made by the employer, the employee, or a combination of both as long as the contribution limits are not exceeded. For 2020 the HSA contribution limits are $3,550 for self-only coverage, and $7,100 for family coverage.
There is also a catch-up contribution of an additional $1,000 for all those that are 55 years of age and older. For those covered for a partial year, a pro rata calculation is made based on the number of months covered by a high deductible plan.
Distributions from an HSA account for qualified medical expenses are not considered taxable income.
Qualifying medical expenses include prescriptions, co pays, deductibles, and other medical expenses.
Items such as dental visits, optical visits, glasses, braces, and other medical expenses are all considered qualifying medical expenses.
Over the counter medications are not allowable expenses for an HSA unless they are covered by a doctor’s prescription.
Distributions not used for qualified medical expenses of the account beneficiary, spouse, or dependents are included in taxable gross income and are also subject to an additional 20% penalty.
There are several exceptions to the 20% penalty including distributions after the beneficiary’s death, disability or attainment of age 65.
The proper reporting of the HSA contributions and distributions is critical and often causes tax notices down the road. Contributions to an HSA are reported to the taxpayer on form 5498SA.
Form 5498SA is used by the taxpayer to fill out Part I of IRS form 8889 which is part of the annual 1040 filing. Distributions from an HSA are reported to the taxpayer on form 1099SA.
The information from form 1099SA is used by the taxpayer to complete part II of IRS form 8889.
Improper reporting of this form often leads to subsequent IRS notices as the IRS receives a copy of the form 1099SA from the financial institution that houses the HSA.
Without proper reporting the IRS has no idea if the distribution was used for qualifying medical expenses or not.
A taxpayer will get a notice about a year after the returns are filed if the HSA distribution is not properly reported.
Unfortunately, it looks like the coronavirus is not going away anytime soon. Properly understanding and using an HSA account can help save money on taxes and help reduce the overall cost of the medical care that we all need at some point.