The health-care reform law has three new rules that affect how much you can contribute
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Archive for the ‘Health coverage’ Category
New Rules for Flexible Spending Accounts
by P. Lewis RobinsonOct
16
IRS Offers Details on New Small Business Health Care Tax Credit
by P. Lewis RobinsonMay
18
WASHINGTON — The Internal Revenue Service today issued new guidance to make it easier for small businesses to determine whether they are eligible for the new health care tax credit under the Affordable Care Act and how large a credit they will receive. The guidance makes clear that small businesses receiving state health care tax credits may still qualify for the full federal tax credit. Additionally, the guidance allows small businesses to receive the credit not only for regular health insurance but also for add-on dental and vision coverage. (more…)
Tax-Free Employer-Provided Health Coverage Now Available for Children under Age 27
by P. Lewis RobinsonMay
11
WASHINGTON — As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee’s children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010.
The Internal Revenue Service announced today that these changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit.
IRS Notice 2010-38 explains these changes and pro (more…)
Tax-Free Employer-Provided Health Coverage Now Available for Children under Age 27
by P. Lewis RobinsonApr
27
WASHINGTON — As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee’s children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010.
The Internal Revenue Service announced today that these changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. (more…)
Eight Important Facts about the Health Coverage Tax Credit
by P. Lewis RobinsonMar
19
The Health Coverage Tax Credit pays 80 percent of health insurance premiums for eligible taxpayers and their qualified family members. However, many people who could be receiving this valuable credit don’t know about it, and are missing out on big savings that can help them and their families keep their health insurance. (more…)
Deducting health insurance for Sub S shareholders
by P. Lewis RobinsonNov
23
The IRS has issued regulations requiring that S corporation shareholders’ health insurance must be reported on their W-2 in order to claim an above the line deduction. The health insurance premiums added to the W-2 are NOT subject to social security taxes.
“My wife and I have been paying for our health insurance out of our own pockets with after tax dollars, so we don’t believe that this should affect us.”
It does affect you, below is my response.
9/4/09 – All You Need to Know About HSA’s
by P. Lewis RobinsonSep
8
What is an HSA? HSA stands for “health savings account” and it is an easy way to save money for your family’s healthcare expenses. The account is typically setup through your bank or insurance company, and contributions must be made in cash or through an employer cafeteria plan.
Who qualifies? Anyone under the age of 65 who meets the following criteria:
Who qualifies? Anyone under the age of 65 who meets the following criteria:
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Covered by an HSA-High Deductible Health Plan (HDHP)
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Cannot be claimed as a dependent by another person
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Is not covered by any other non-HDHP insurance plan
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Cannot be enrolled in Medicare
What is a High Deductible Health Plan? For 2009, the IRS states that a HDHP is an insurance plan that has a minimum deductible of $1,150 for self-only coverage or $2,300 for family coverage. The plan must limit out-of-pocket expenses to $5,800 for self-only coverage and $11,600 for family coverage.
How much can I contribute to my HSA in 2009? If you’re under the age of 55, you can contribute up to $3,000 for self-coverage or $5,950 for family coverage. If you’re 55 or older, you can contribute up to $4,000 for self-coverage or $6,950 for family coverage. If two married individuals are 55 or older during the tax year with separate HSAs, the contribution limit increases to $7,950. Excess contributions are not deductible and may be subject to other penalties.
What is a qualified distribution? All distributions are strictly for qualified medical expenses. (For more information on qualified medical expenses, see our May 4, 2009 blog entry.) Distributions used for anything other than qualified medical expenses are subject to a 10% penalty.
What is the advantage of an HSA? The contributions to your account are excluded from your gross income, which helps to lower your taxable income.
Please contact our office if you have any additional questions on HSAs.
How much can I contribute to my HSA in 2009? If you’re under the age of 55, you can contribute up to $3,000 for self-coverage or $5,950 for family coverage. If you’re 55 or older, you can contribute up to $4,000 for self-coverage or $6,950 for family coverage. If two married individuals are 55 or older during the tax year with separate HSAs, the contribution limit increases to $7,950. Excess contributions are not deductible and may be subject to other penalties.
What is a qualified distribution? All distributions are strictly for qualified medical expenses. (For more information on qualified medical expenses, see our May 4, 2009 blog entry.) Distributions used for anything other than qualified medical expenses are subject to a 10% penalty.
What is the advantage of an HSA? The contributions to your account are excluded from your gross income, which helps to lower your taxable income.
Please contact our office if you have any additional questions on HSAs.
5/18/09 – Self-employed Health Insurance Deduction
by P. Lewis RobinsonMay
18
If you are self-employed, you can claim 100% of premiums paid on your tax return for medical and dental insurance and qualified long-term-care insurance for yourself, your spouse, and your dependents. The deduction is also allowed if you are a general partner in a partnership, a limited partner receiving guaranteed payments, or you received wages from an S corporation in which you were more than a 2% shareholder. As a sole proprietor, you may claim the 100% above-the-line deduction whether the policy is purchased in your own name or the name of the business.
If you are a more than 2% shareholder-employee of an S corporation, the IRS position is that the S corporation must “establish” the health plan, but the plan can be considered “established” by the S corporation even if you obtain the health plan in your own name, so long as:
If you are a more than 2% shareholder-employee of an S corporation, the IRS position is that the S corporation must “establish” the health plan, but the plan can be considered “established” by the S corporation even if you obtain the health plan in your own name, so long as:
- The corporation makes the premium payments to the insurance company or the corporation reimburses you for the premiums you pay.
- The premiums are reported as wages on your Form W-2 and on your tax return.
- The premiums are subject to income tax withholdings, but not FICA withholdings.
If you have a qualified long-term-care policy, part of the premium is deductible depending on your age (see below) and this amount is included in the above-the-line deduction.
The 100% deduction may not exceed your net profit from the business under which the health premiums are paid, less deductions claimed for 50% of self-employment tax and Keogh, SEP or SIMPLE retirement plan contributions.
The 100% health insurance deduction may not be claimed for any month that you were eligible to participate in an employer’s subsidized health plan, including a plan of your spouse’s employer. If the deduction would be barred for any month because of such eligibility and you have long-term-care coverage that is not employer subsidized, you may claim the 100% deduction with a portion of the long-term-care premiums that is deductible for your age.
CAUTION: FROM OUR OBSERVATIONS, IT APPEARS THAT MOST PAYROLL SERVICE COMPANIES DO NOT HANDLE SELF-EMPLOYED GROUP INSURANCE CORRECTLY. IF YOU HAVE A QUESTION AS TO WHETHER YOUR PAYROLL COMPANY IS HANDLING IT CORRECTLY, PLEASE CALL US.
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Maximum annual deductions for long-term-care insurance premiums:
- Age 40 or younger $310.00
- Ages 42 through 50 $580.00
- Ages 51 through 60 $1,150.00
- Ages 61 through 70 $3,080.00
- Over age 70 $3,850.00
5/4/09 – Deductible Medical Expenses
by P. Lewis RobinsonMay
4
Did you know that your medical expenses must exceed 7.5% of your adjusted gross income (AGI) for them to be deductible? For instance, if your AGI is $98,000 and your medical expenses total $5,000, they are not deductible. However, if your medical expenses total $9,000, you can deduct $1,650 if you choose to itemize on your tax return.
Even though you may have insurance that covers a portion of your medical bills, you can still deduct the amounts you pay out-of-pocket. If you keep up with your receipts throughout the year you may be surprised to find out how much you actually spent on health care.
What qualifies as a deductible medical expense?
- Ambulance transport services
- Attendant or service animal for a physically disabled person
- Rehabilitation programs for alcoholism or drug addiction
- Dentures and prosthetic limbs
- Physician visits including psychologists, eye doctors, dentists, chiropractors, etc.
- Special exercise or diet programs if prescribed by a doctor to treat a specific condition
- Eye surgery including LASIK and radial keratotomy
- Fertility enhancement (In vitro fertilization or reversal of a prior sterilization surgery)
- Hospital, hospice and nursing home care
- Health insurance premiums and long-term care insurance
- Lab fees and X-ray services
- Mileage and lodging if person is required to travel for specific treatment
- Prescription drugs and insulin
- Wheelchairs, motorized scooters, crutches, hearing aids, braces and other medical aids
- Glasses and contact lenses
- Oxygen tanks, humidifiers, special air conditioners, etc. if prescribed by a doctor
- Chairs or mattresses prescribed by a doctor to treat specific conditions
- Expenses associated with the special education of a mentally or physically disabled person
- Travel by parents to visit their child at a special education facility (not meals/lodging)
- Wigs for patients who have hair loss caused by a disease or treatment of a disease
- Cosmetic surgery if necessary to improve a birth deformity, a disease, or an accident
- Installation of a pool if swimming is prescribed by a doctor for therapy or treatment
- Medical conferences related to the chronic illness of the taxpayer, spouse or dependent
What does not qualify as a deductible medical expense?
- Cosmetic surgery to improve appearance, including hair transplants and hair removal
- Funeral expenses
- Health club dues
- Life insurance and guaranteed payments for days in the hospital
- Marijuana, even if it is prescribed by a doctor
- Maternity clothes
- Non-prescription nicotine patches or gum
- Teeth whitening, even if it is performed by a dentist
If you have any questions or need clarification, please contact our office.
1/14/08 – Mortgage Insurance Premiums & Health Savings Accounts
by P. Lewis RobinsonDec
9
Mortgage Insurance Premiums May Be Deductible
Many homeowners get saddled with paying mortgage insurance premiums if they don’t have enough of a down payment. Mortgage insurance premiums are now deductible as part of the mortgage interest deduction, but for four years only. That’s right, this deduction begins at the start of 2007 and expires at the end of 2010. Mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, the Rural Housing Administration, and private mortgage insurance companies all qualify for the deduction. For additional information see the Mortgage Insurance Premiums section of IRS Publication 936.
Health Savings Accounts
The new law makes a number of liberalizations in the tax rules for health savings accounts (HSAs). HSAs permit employees and employers to make tax deductible contributions to a tax-sheltered savings account if the employee is covered by a qualifying “high-deductible” health insurance policy. Contributions to the HSA can be withdrawn tax-free to pay for the employee’s out-of-pocket medical expenses. Among the new law changes:
- In the past, the maximum annual contribution to an HSA could not exceed the lesser of (1) 100% of the annual deductible under the high deductible health plan, or (2) a fixed dollar amount (for 2007, $2,850 in the case of self-only coverage and $5,650 in the case of family coverage). The new law repeals the 100%-of-deductible limit starting in 2007.
- Formerly, the HSA contribution limit was prorated if coverage was less than 12 months. The new law allows a full year’s contribution to an HSA for partial year’s coverage, provided the high deductible plan coverage is in place in the last month of the year and the coverage lasts for at least 12 months.
- Distributions from an IRA for medical expenses are taxable income (to the extent not a distribution of basis). Distributions from an HSA to pay medical expenses are not. The new law permits taxpayers who cannot afford to fully fund an HSA with direct contributions to move IRA money to an HSA. The rollover can only be made once in the taxpayer’s lifetime.
