Healthcare

It’s Benefits Enrollment Time – Know the difference between Health Care Accounts

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Understanding the Differences Between Health Care Accounts

Health care costs continue to be in the news and on everyone’s mind. As a result, tax-friendly ways to pay for these expenses are very much in play for many people. The three primary players, so to speak, are Health Savings Accounts (HSAs), Flexible Spending Arrangements (FSAs) and Health Reimbursement Arrangements (HRAs).

All provide opportunities for tax-advantaged funding of health care expenses. But what’s the difference between these three types of accounts? Here’s an overview of each one:

HSAs. If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,400 for self-only coverage and $6,750 for family coverage for 2017. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

FSAs. Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,600 in 2017. The plan pays or reimburses you for qualified medical expenses.

What you don’t use by the plan year’s end, you generally lose — though your plan might allow you to roll over up to $500 to the next year. Or it might give you a 2½-month grace period to incur expenses to use up the previous year’s contribution. If you have an HSA, your FSA is limited to funding certain “permitted” expenses.

HRAs. An HRA is an employer-sponsored arrangement that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

Please bear in mind that these plans could be affected by health care or tax legislation. Contact our firm for the latest information, as well as to discuss these and other ways to save taxes in relation to your health care expenses.

 

Small Business Affordable Care Act Reporting Responsibilities

Small business obamacare reporting

Extended deadlines, confusing terms for business sizes and hiccups in the Small Business Health Options Program (SHOP) Marketplace may have small business owners dreading the next steps for IRS forms and coverage reporting. Fortunately, only 4% of small businesses are subject to the Affordable Care Act (ACA) reporting requirements or the employer responsibility provision.

The good news is that reporting for the 2014 calendar year is entirely voluntary, and there will be no negative impact or tax liability for either employers or employees, if small business owners decide to report for this year.

Defining Small Business Sizes:

Small Employer: Generally businesses with fewer than 50 full-time employees.

Large Employer: 50 or more full time or full time equivalent employees.

Not sure how many full time employees or full time equivalent (FTE) employees you have? Head over to the healthcare.gov FTE calculator.

Reporting Start Dates:

100 or more employees: Minimal Essential Coverage (MEC) must start January 1, 2015, with mandatory reporting filed no later than February 29th, 2016 or March 31, 2016 if e-filing.

50 or more employees: While MEC is not required until January 1, 2016, reporting for the 2015 calendar year is required.

25 or less: Reporting is encouraged, but not mandatory. However, small businesses of this size may be eligible for tax credits and other benefits if they voluntarily file reports for 2014 or 2015. Learn more about these tax credits at the IRS website.

What is Reported

Small businesses must report about the coverage (if any) offered, per month, to their full-time employees. This information, reported per employee, must include the lowest cost of self-only coverage offered to employees.

Forms, Forms and More Forms

The IRS has, in an effort to streamline the reporting process for businesses, created single, combined form for information reporting. The forms created (6055 & 6056) will be used by employers to report to both the IRS and to furnish employees with information about their offered coverage.

Simplified Reporting Options

Employers that offer a qualifying offer – minimal value coverage for a full time employee that costs the employee no more than $1,100 and also offers an option family coverage – have an even simpler way to report for 2015. Business owners must inform employees that they may be eligible for premium tax credits and provide standard statements for all reporting.

If the employee receives a qualifying year-round offer, the employer needs to report only that they received the qualifying offer 12 months out of the year and the name, address, and taxpayer identification number of said employee. A copy of this or a statement of the same information must be furnished to the employee.

If the employee receives this qualifying offer for fewer than 12 months out of the year, the IRS accepts reporting that simply indicates an offer was made with a code entered for each month the offer was made.

These simplified options were brought about in a response to feedback from stakeholders, and are the results of the IRS trying to make a difficult and often costly change in the way small businesses are run a little easier on business owners.

W-2 Reporting

If an employer provides coverage under a group health plan, they must report the value of the healthcare provided on employee W-2 forms in Box 12 using the code DD to identify the amount. Find out more about W-2 reporting from the IRS page that also provided a chart on W-2 reporting.

While the IRS has instituted a policy of leniency for employers throughout this transition period, it is always a good idea to find webinars online, local workshops, or work with a small business accountant to better understand the responsibilities of a small business owner.

If you feel overwhelmed or would like more information, contact Paul Herman for a consultation, (914) 400-0300.

2015 HSA amounts

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

2015 HSA amounts HSA-piggy_360_360_95

Health Savings Accounts (HSAs) were created as a tax-favored framework to provide health care benefits mainly for small business owners, the self-employed, and employees of small to medium-size companies who do not have access to health insurance.

The tax benefits of HSAs are quite substantial. Eligible individuals can make tax-deductible (as an adjustment to AGI) contributions into HSA accounts. The funds in the account may be invested (somewhat like an IRA), so there is an opportunity for growth. The earnings inside the HSA are free from federal income tax, and funds withdrawn to pay eligible health care costs are tax-free.

An HSA is a tax-exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of the participant who, for the months for which contributions are made to an HSA, is covered under a high-deductible health plan. Consequently, an HSA is not insurance; it is an account, which must be opened with a bank, brokerage firm, or other provider (i.e., insurance company). It is therefore different from a Flexible Spending Account in that it involves an outside provider serving as a custodian or trustee.

The recently released 2015 inflation-adjusted contribution limit for individual self-only coverage under a high-deductible plan is $3,350, while the comparable amount for family coverage is $6,650. For 2015, a high-deductible health plan is defined as a health plan with an annual deductible that is not less than $1,300 for self-only coverage and $2,600 for family coverage, and the annual out-of-pocket expenses (including deductibles and copayments, but not premiums) must not exceed $6,450 for self-only coverage or $12,900 for family coverage.

 

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.