What is a HSA?
A Health Savings Account (HSA) is a type of account that you can make contributions to for out-of-pocket medical expenses, while simultaneously reducing your taxable income.
Do I qualify for a HSA?
This depends on if you are enrolled in a high-deductible health insurance plan. For 2018, the IRS defines this plan if you have a deductible at least $1,350 for an individual or $2,700 for a family. Additionally, the out-of-pocket expenses can't be more than $6,650 for an individual or $13,300 for a family. Usually your employer will have a medical plan that offers this savings account. However, if this is not the case, then you can open a separate HSA account at most financial institutions.
How does an HSA work?
You will receive a debit card or checks linked to your HSA account. You can then use these funds for eligible medical expenses such as deductibles, copays, and other expenses not covered by your plan. You cannot use them for insurance premiums. Most importantly, you cannot use them for any other types of expenses or you will pay income tax on that amount and pay penalties if under 65.
Your contribution limits for 2018 are $3,450 for individuals and $6,900 for families.
HSA tax advantages and investment potential
The money that is contributed, saved, and pulled from this type of account is tax-free and tax deductible. As mentioned before, your contributions will reduce your taxable income. For example, if you made $50,000 and you put $5,000 in your HSA, you will be taxed at $45,000.
For the investor savvy individuals, you can invest your HSA in mutual funds, stocks, and other investment tools to earn more income. Contact us and we can refer you to several professional financial planners today!
HSA Information
Here are some important facts about penalties to consider when filing or paying late:
A failure-to-file penalty may apply: if you have a balance owed, and have failed to pay or file, you will owe interest and penalties on the tax you pay late
Minimum penalty: if you file your return more than 60 days after the due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax
Reasonable cause: you will not have to pay any late penalties if you can justify with a reasonable cause why you cannot pay.
File even if you can't pay: make sure to file and pay as much as you can in order to minimize the amount of interest and penalties you accumulate. The sooner you pay your bill the less you will owe.
Worried about what your next step should be? Call us and we will provide you with some direct advise!
Late Filing Penalties
What is a refundable tax credit?
Refundable tax credit are "refundable" because they reduce the federal tax that you owe and receive a refund. For example, if you are eligible to take a $1,000 Child and Dependent Care Credit but owe $500 taxes, you can receive the additional $500 as a refund.
Some types of refundable tax credits are:
- Earned Income Tax Credit
- Child and Dependent Care Credit
- Saver's Credit (aka "retirement savings contributions credit")
What is a non-refundable tax credit?
A nonrefundable tax credit is a tax credit that can only reduce a taxpayer's liability to zero and any amount leftover is given up. For example, if you are eligible to receive a $1,000 Foreign Tax Credit and the tax owed is $500, you can only reduce your taxable amount by $500, and not the full $1,000.
Some types of non-refundable tax credits are:
- Adoption Tax Credit
- Foreign Tax Credit
- Mortgage Interest Tax Credit
- Residential Energy Property Credit
- Credit for the Elderly or Disabled
- Child Tax Credit (prior to 2018)
Refundable vs. Non-Refundable Tax Credits
Everybody wants to save money where they can, and older Americans are no exception. Here are 4 ways you can do just that!
Standard Deduction for Seniors
If you or your spouse are older than 65 and do not itemize your deductions, then you can take advantage of a higher standard deduction amount. Additionally, there are increases if either one of you have certain disabilities
Credit for the Elderly or Disabled
If you or your spouse are either 65 or under age 65 with a permanent or disability, you may qualify for this credit. If you are under 65, you must have your physician complete a statement certifying that you or your spouse had a permanent or total disability. Additionally, you must have taxable disability income that meets certain requirements.
The Credit is based on your age, filing status, and income and you must file a Form 1040 or 1040A in order to get the Credit.
There qualifications for this Credit are:
- your income on your Form 1040 Line 38 for 2017 must be less than:
- $17,500 ($20,000 if married filing jointly and only one spouse qualifies)
- $25,000 (married filing jointly and both qualify)
- $12,500 (married filing separately and lived apart from your spouse)
- the non-taxable part of your Social Security, nontaxable pensions, annuities, or disability income is less than:
- $5,000 (single, head of household, or qualifying widow with dependent child)
- $5,000 (married filing jointly and only one spouse qualifies)
- $7,500 (married filing jointly and both qualify)
- $3,750 (married filing separately and lived apart from your spouse)
Early Withdrawal Penalty Eliminated
Once you reach age 59 1/2, there is no longer a penalty for early withdrawal. If you leave or are terminated from your job at age 55 or older, you may withdraw money from a 401(k) without penalty, but you will still need to pay tax on the additional income.
Retirement Account Limits Increase
Once you reach age 50, you can contribute up to $24,500 to a retirement account, which increased $500 since 2017.
Four Tax Tips for Older Americans
