Don’t Get Tripped Up By The IRS Tweak To Health Savings Accounts

KHN contributing columnist Michelle Andrews writes the sequence Insuring Your Health, which explores well being care protection and prices.

To contact Michelle with a query or remark, click here.

This story additionally ran on NPR. This story might be republished without spending a dime (details).

It’s tax time, and this week I answered questions from readers concerning the penalty for not having medical health insurance in addition to modifications to well being financial savings accounts. I additionally talk about medical health insurance protection choices for a reader’s dad and mom who’re immigrants and inexperienced card holders.

Q: I heard that well being financial savings account guidelines could be loosened underneath the brand new spending invoice handed by Congress final month. Did that occur?

No. In truth, the requirements have grow to be barely tighter this yr.

In current years, members of Congress from each events have supported expanding eligibility for well being financial savings accounts and the way the cash in them might be spent, amongst different issues. To date, although, these proposals haven’t grow to be regulation.

Health financial savings accounts, that are linked to high-deductible well being plans, proceed to multiply. In 2017, there have been 22 million accounts totaling more than $45 billion in property, a rise of 11 p.c within the variety of accounts over the earlier yr, in response to Devenir, a agency that gives recommendation on HSA investments.

Money deposited in HSAs is tax-deductible, grows tax-free and can be utilized with out owing tax to pay for medical bills. Advocates promote the plans as a means to assist customers play a bigger position in controlling their well being spending and say that the tax benefits assist folks afford care.

The Internal Revenue Service announced last month that the utmost quantity people with household protection might contribute to their well being financial savings accounts would truly be reduced slightly from their beforehand introduced restrict for 2018. The most contribution for folks with particular person protection in 2018 stays $three,450.

The $50 household protection contribution discount, from $6,900 to $6,850, is fairly small change. It occurred as a result of the federal authorities altered the way in which it calculates inflation changes to the contribution limits.

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But ignoring the brand new restrict might create complications for individuals who have already made the utmost HSA contribution for the yr primarily based on the $6,900 determine, stated Roy Ramthun, president of HSA Consulting Services. If you don’t ask the financial institution that handles your HSA to return the $50 plus any earnings which have accrued earlier than the following tax season, your taxable revenue might be off by that quantity, plus you’ll be on the hook for a 6 p.c penalty for exceeding the utmost contribution allowed.

That’s not going to quantity to some huge cash, however there’s greater than monetary ache to think about, Ramthun stated. “Do you really want to give the IRS a reason to come find you?”

Q: I didn’t have medical health insurance for one month final yr, in January 2017. Do I owe a penalty for not having medical health insurance once I file my taxes this spring?

If you had been uninsured for just one month in 2017, you gained’t owe a penalty. People might be uninsured for up to three consecutive months through the yr with out triggering a tax penalty for not having protection, stated Tara Straw, a senior coverage analyst on the Center on Budget and Policy Priorities.

This yr, for the primary time, the Internal Revenue Service gained’t settle for electronically filed tax returns until filers report whether they had health insurance all yr, had been exempt from the requirement or pays a penalty for not having had protection. Tax refunds which might be due with paper returns that don’t have this info could also be delayed, in response to the IRS.

In your case, you’ll file Form 8965 along with your tax return to report a short-term protection hole and declare an exemption from the protection requirement. Your employer — or your insurer, for those who bought protection by yourself — will ship a type to the IRS stating that you simply had been coated for the opposite 11 months, Straw stated.

Those penalties — $695 or 2.5 p.c of your family revenue, whichever is larger — are additionally in power for 2018 protection. But beginning subsequent yr, you gained’t owe a penalty irrespective of how lengthy chances are you’ll be uninsured. The tax reform regulation eradicated the penalty for not having medical health insurance in 2019.

Q: What medical health insurance choices can be found for my dad and mom, who’re seniors who labored in India and are actually retired within the United States with inexperienced playing cards? 

Depending on their scenario, folks like your dad and mom who’re legally entitled to reside completely within the United States have numerous choices.

From your description, it’s unclear whether or not they stay on their very own or with you. If you declare them as dependents in your taxes, you would possibly take into account including them to your personal medical health insurance plan, stated Shelby Gonzales, a senior coverage analyst on the Center on Budget and Policy Priorities.

Assuming your dad and mom haven’t labored for no less than 10 years within the United States, they’re in all probability not eligible for premium-free hospitalization protection underneath Medicare, the federal medical health insurance program for folks age 65 and older, Gonzales stated. If they’ve lived within the States for no less than 5 years and their revenue and different sources meet state eligibility pointers, nonetheless, they may qualify for Medicaid, the federal-state program for low-income folks.

If they don’t qualify for both authorities well being program, they may take into account shopping for a medical health insurance plan on the state market or by way of a dealer.

If they purchase a market plan, they could possibly be eligible for premium subsidies if their revenue is lower than 400 p.c of the federal poverty level (about $66,000 for a pair in 2018), stated Gabrielle Lessard, a senior coverage lawyer on the National Immigration Law Center.

Please go to to ship feedback or concepts for future subjects for the Insuring Your Health column.

Michelle Andrews: @mandrews110

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