The way healthcare is being paid for is changing across the nation. Whether it is Obamacare or a health savings account, there are many options to stay out of debt. Having a plan of some sort is vital in these days of rising health costs.
Health Savings Account: HSA’s were established in 2003 and they are for people with high-deductible health plans. The advantages of an HSA include contributions being tax deductible, or if the contribution was made through a payroll deduction, it is considered pretax. Along with contribution advantages, any interest earned in an HSA is considered tax-free and tax-free withdrawals are allowed for most medical expenses. Then, whatever money is not spent at the end of a year stays in the account and can be used in the next year.
Flexible Spending Account: FSA’s let employees contribute money to pay for health care expenses that are out-of-pocket. On top of that, employers may make contributions to an employee’s FSA. Money in an FSA can be used to pay for certain medical and dental expenses, such as copayments and deductibles. However, money in an FSA cannot be used on insurance premiums.
For dependent care expenses, an FSA is a great way to save money. To do this, money comes out of an employee’s paycheck before tax. Then, this money can be used to reimburse that employee for dependent care so that they may work or look for work. This FSA option has reimbursement limits based on an employee’s tax bracket.
Similar to an HSA, money contributed to an FSA is not subject to federal income tax when deposited. If there is money left in an FSA at the end of the year, employers may allow employees to carry over only $500. This newer feature is expected to encourage more people to enroll in an FSA.
The IRS announced that for 2016, the contribution limit for a family in a HSA will be raised by $100 when compared to 2015, up to $6,750 for the year. However, for the individual, there is no change in the limit from $3,350. As for an FSA, the limit will remain the same for 2016, at $2,550. Then, for a dependent care FSA, the contributions limitations are $5,000 per household, or $2,500 if married and filing separately.
It is important to pick the right plan for yourself in order to make your money work best for you. For all your HSA and FSA questions, along with other accounting concerns, please call Lescault & Walderman today at 866-496-2042.