The IRS offers many tax-break programs to help people pay for medical expenses. Known as the tax-favored health plans, these programs are designed to help you (and your family) cover the medical, vision, dental, and prescription expenses. Read on to learn more about these plans.
2 Tax-Favored Health Plans to Maximize Your Tax Savings
Health Savings Account (HSA)
An HSA is a tax-exempt account that is used to pay for you or your family’s medical expenses, but only if you’re covered by a high-deductible health insurance scheme.
You (or someone else) can contribute to this account and take a tax deduction for the amount contributed to your HSA by anyone other than your employer. If you use it for qualified medical expenses, the money you take out of your HSA is tax-free.
How to qualify for HSA?
You can set up this account through your insurance company, bank, employer, another approved trustee. These accounts are portable so even if you change employers, you can still keep the account. The money will remain in your HSA until you take it out.
In order to qualify for an HSA you need to meet the following criteria:
- You are not enrolled in Medicare.
- You should only have a high-deductible health plan (HDHP), and not any other general health coverage (except what is allowed by the IRS).
- You are covered by a HDHP on the first day of the month.
- You are not a dependent on someone’s tax return. The contribution limit for the HSA is $7100 (for families) and $3,550 (for individuals), for 2020 tax returns. If you are 55 years or older at the end of the year, you’ll need to pay an extra $1,000.
You cannot contribute to a health savings account if you are covered by a Health Reimbursement Account or a Flexible Spending Account.Pro Tip: The balance of your Health Savings Account rolls over from year to year if you don’t use it, so you don’t have to worry about forfeiting your contributions.