Help Tax Clients with an HSA
Health Savings Accounts (HSA) are an under-utilized tax planning tool. Especially with rising costs of health insurance premiums and medical care. These pre-tax accounts allow for a lot of flexibility compared to their distant cousins, the flexible savings account.
The catch with HSAs is that they can only be used by someone enrolled in a high deductible health insurance plan. High deductible plans used to be a lot less popular and insurance companies used to offer a lot better coverage. For 2024 a single person is in a high deductible health insurance plan if the annual deductible is $8,050 or higher, and a married couple is in a high deductible plan when the family plan deductible is $16,100 in 2024 or higher.
A lot more health insurance plans are being offered with higher deductibles, and they’re more attractive to employers and employees because the premiums tend to be lower. The trade off of course, is if you actually have medical care needs that meet your deductible, it’s a big out of pocket expense. This is where an HSA becomes a helpful tool for both family budgeting and tax planning. Health savings accounts can be used to pay for qualified medical expenses, which is a broad term that can cover everything from co-pays, deductible payments, prescription medication, vision and dental care expenses, and household medical expenses such as Tylenol. The flexibility makes it much easier for families to spend HSA dollars and everything going into the HSA is pre-tax.
Individuals can set up their own HSA as long as they are enrolled in a high deductible plan, but employers can also contribute on behalf of employees. The best feature of these accounts is unused funds rollover tax free from year to year whereas funds from a flexible savings account must be spent.
HSA are rarely considered for tax planning purposes but can be an easy way to help clients save money. A married filing joint couple can put up to $8300 into an HSA in 2024 to be treated as tax free money. There are also no income limits as to who can benefit from these accounts, making them another helpful tool for more taxpayers.
It’s worth asking tax clients if they are in a high deductible health plan and if so recommend they consider an HSA. HSA accounts can be set up at most local banks and don’t require an employer plan to be in place for someone to take advantage of the tax benefits of the funds. Do recommend that your clients keep good documentation as they would be required to prove the validity of qualified medical expenses in an audit.
Christine Gervais
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and providing strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.