Healthcare Costs And Year-End Planning
The following highlights are some of the more important year-end-planning considerations regarding your healthcare.
Healthcare costs may constitute a large chunk of many individuals' budgets. If you are covered by a high-deductible health plan, there are several advantages to setting up a health savings account (HSA). Those advantages include a tax deduction (limited to $3,850 for self-only coverage and $7,750 for family coverage in 2023; $4,150 and $8,300 for 2024; plus a $1,000 catch-up contribution for age 55+) for your contributions even if you do not itemize. The potential exclusion from income of contributions made to the HSA by your employer, and tax-free distributions where the funds are used to pay qualified medical expenses.
Alternatively, if your employer offers a health flexible spending arrangement (FSA), making use of such a plan will allow you to pay for qualified medical and dental expenses with pre-tax money that you contribute to the plan.
For 2023, the maximum contribution allowed to fund such a plan is $3,050 ($3,200 for 2024). A big advantage to having an FSA is that you can use the full amount as of the beginning of the year, even before making the first contribution. Generally, if the full amount is not used during the year, it does not carry over unless your employer has the plan provide for a grace period or a carryover.
A grace period of up to 2½ months after the end of the plan year can be provided in the plan during which employees may use amounts left in an FSA account at the end of the plan year to pay for qualified medical expenses. Any amounts not used at the end of the grace period are nonrefundable. A carryover provision allows an employee to carry over up to $610 for 2023 ($640 for 2024) in an FSA account at the end of the plan year to the immediately following plan year.
Your employer can, however, have the plan specify a lower maximum carryover amount. Any unused amount over the amount allowed as a carryover by the plan is forfeited at the end of the plan year. A plan may allow either the grace period or a carryover, but it may not allow both.
For both individual/family insurance plans and employee benefits plans, Contact RCB & Associates, LLC for more information.
Read the complete Journal of Accountancy article here