Sander & Associates, P.A.

HEALTH SAVINGS ACCOUNTS – THE HOT NEW TAX DEDUCTION
A great new tax deduction is now available in 2004. Health Savings Accounts are a new type of medical savings account that are available for people with existing high deductible health insurance plans – those with a $1,000 deductible for individuals and $2,000 for family coverage.

Contributions can be deducted up to the amount of the policy deductible to a maximum of $2,600 for individuals and $5,150 for family coverage. Individuals born before 1950 can contribute an additional $500.

All taxpayers, regardless of whether or not they itemize their deductions, can take the deduction. Income earned within the HSA's are not taxable and withdrawals for medical expenses are tax-free. Distributions for other reasons are taxed and also incur a 10% penalty. There are no penalties for payouts after age 65 and due to death or disability. Unused balances carry over to the following year.

Employers can open HSA's and contribute to them for employees as long as they offer them to all of their eligible workers. Payins are deductible by employers and tax free to the employees and there are no payroll taxes due on payins. The plan contributions can also be funded through salary reductions. This is a great option for employers who have seen increases in health cost coverage for the last seven years, including an average of 14% increase in the past year. For those employers that want to stick with traditional coverage we recommend the following strategies to reduce costs – shop for a different carrier, increase deductibles, and educate your employees to promote health.

The plans are a great idea for those who are in good health and can benefit by the tax-free compounding of their unused payins. For more information, visit our website and read the newsletter "Are the New Health Savings Accounts Healthy for You and Your Employer?"

OTHER ITEMS OF NOTE:

Expenses for preventative care can be covered dollar for dollar. A lot of common benefits qualify as preventative care – annual physicals, prenatal and well-child care, immunizations, mammograms, pap smears are all included. Prescription drugs are counted against the deductible. Health Savings Accounts (HSA's) have several major tax advantages. Contributions are deductible, employees are not taxed on employer payins, earnings inside the HSA build up tax-free, and withdrawals used to pay medical bills are not taxed. Other distributions are taxed in addition to a 10% penalty.