Answering Fort Worth Residents Tax Question about How to Reduce the Cost of Health Care

Gregory S. Simpson is a Certified Public Accountant (CPA) who is the founder of Gregory S. Simpson and Associates P.C., a CPA firm located in the suburbs of Fort Worth in North Richland Hills, TX. Gregory S. Simpson and Associates specialize in accounting work, tax consulting and business and individual tax return preparation.  Greg has over 40 years of accounting experience and over 30 years as a professional CPA. He answers questions from time to time for the residents of Fort Worth on tax related issues.  

If you’re like most Americans today, you are looking for some kind of relief from the ever increasing cost that is associated with health care and health insurance. As a small business owner, located in the suburbs of Fort Worth, Texas, I have experienced firsthand the pain of trying to find a way to pay for my associates and their families increasing health care premiums. One of the big benefits I have over most businesses owners is that I am a practicing Certified Public Accountant who is licensed in Texas. I annually get informed of and trained on new tax laws each year. In late 2003 George W. Bush signed into law the Health Savings Account (HSA) and later in 2004 I learned more about how it worked and how it could be applied to me and my company. In the following paragraph I will address how the HSA could help you or your business save on your taxes and health care cost.  

Let’s take a more in depth look at the individual Health Savings Account, which is often referred to by its acronym “HSA”. The first question is how does a HSA work? A HSA is a savings account that is funded by you, an employer, a friend or relative. An individual is then allowed to take distributions from their Health Savings Account for qualified medical expenses. All contributions (see below the maximum amount) to your Health Savings Account are tax deductible to you, your employer or both depending on who contributed the funds.  A HSA works in conjunction with what is called a High Deductible Health Plan (HDHP). The basic concept behind a HDHP is that the higher the deductible or “out-of-pocket expense”, the individual is willing to pay, the lower the premiums they will have to pay each month. The HSA was created on the basis that people who could see their savings depleted for medical visits would make better educated decisions with regards to seeking medical attention.

Health Savings Accounts offer the following benefits to the employee:

1. Rates among carriers can be very competitive which keep your rate low.
2. In 2008, you can contribute tax free up to a maximum of $2,900 if your plan is for a single individual and $5,800 to your Health Savings Account if your plan is for a family and you are under 55 years of age. If older than 55 years of age, you can contribute $3,800 if on a single plan and $6,700 if your plan is for a family.
3. If you find yourself unemployed, you will not find yourself uninsured. You are entitled to draw money from your Health Savings Account without penalty to pay your monthly premiums and maintain health insurance while unemployed.
4. Your employer, friend or family member can contribute to your Health Savings Account.
5. If you don’t spend the total amount you placed in your Health Savings Account on qualified medical expenses by year end, you get to roll that money over to next year. (Example: You put in $5,800 into your HSA in 2008, but you only use $1,000 for qualified medical expense. You would roll over $4,800 into the next year, 2009. You would also be able to contribute and deduct from your taxes another $5,800 in 2009). With a little fortune in your favor and managing your health care correctly you can build up a balance in your HSA, these funds can be withdrawn without being subject to the 10% penalty once you reach the age of 65, become disabled, or upon death. However, you should note taxes will still be applied to these distributions.
6. You can have a HSA/HDHP for you, your family or both
7. You can take your funded Health Savings Account with you, even if you leave your employer.

Health Savings Accounts offer the following benefits to the employer if they choose to participate in an employees’ individual plan:

1. You are able to hire and retain good employees by contributing to their individual HSA accounts and receive a tax deduction on the money contributed.
2. You no longer have to worry about increasing premiums, as the individual/employee is responsible for the premiums. As an employer, you can only choose to contribute to their savings account; you cannot pay their premiums (if they have an individual plan) and receive a tax deduction or write off.

It is important to note that all HSA distributions should be reported on tax form 8889. An individual who holds a Health Savings Account and received distributions from the HSA should retain all receipts for completing their taxes. Also note that an individual is only allowed to draw money out of their Health Savings Account without penalty for qualified medical expenses. For more information on qualified expenses refer to IRS publication 502. If you would like to find out more about HSAs or on how a HSA can be used for you or your business, contact Gregory S. Simpson & Associates, P.C. at info@gregoryssimpson.com or call us at 817-656-3397. We are located just off Grapevine highway and Precinct Line in North Richland Hills, Texas.