Tax-Saving Health Care Ideas
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Here are some ways to deduct medical and dental expenses, to
lower your income tax and social security tax.
| 1. |
About 30% - 40% of employers offer HSAs (Health Savings
Accounts) to their employees. An HSA can also be set up
by any individual at most financial institutions. It lets you deduct nearly
all your medical and dental expenses on your federal income tax
and on many state tax returns, so you'll save the same percentage
of money as your tax bracket. More savings comes from the
fact that an HSA is always used with high-deductible health
insurance, which of course costs less. You could also
save money by watching your health expenditures more closely
instead of relying on insurance, but be careful not to scrimp at
the expense of your health.
Your HSA will of course earn interest. An
HSA is somewhat similar to an IRA in that you can use it
for retirement savings, but an HSA is better because it
also lets you make withdrawals for medical
expenses completely tax-free. Like you can with an IRA, you
can withdraw money for other purposes if you pay a 10% penalty and pay income tax on
it.
If you're generally healthy and have few medical expenses, an HSA
is probably a good idea for you. If your health insurance
is provided by your employer, switching to high-deductible
insurance will save him a lot of money, so employers should be
willing to contribute most of those savings to your HSA.
| | 2. |
A cafeteria plan allows an employee to choose from
various benefits on a pre-tax basis. You can opt to use this plan
to pay for medical expenses, children’s day care expenses, or insurance that may
cover health care, accidents, disability, vision, dental care and
group term life needs. However you must commit to the plan
before the calendar year begins, and you can only alter your
choice if there's a change in marital status, number of
dependents, or spouse’s employment. Any money that is unused by
the end of the year is kept by your employer.
| | 3. |
A FSA (Flexible Spending Arrangement) can
be spent on expenses for health care, child care, summer day
camps, or the care of an aging parent (but not health
insurance). It's available from many employers and cuts
taxes in the same amount as an HSA. A FSA doesn't require
high-deductible insurance, but on the other hand you must use it
up by the end of the year or lose what's left. A FSA is great for
those people who have high medical expenses. It's underused
by the public because it doesn't generate a big profit for
benefit administration companies.
| | 4. |
If you start to incur high medical costs, remember that you can
deduct medical bills exceeding 7.5% of your Adjusted Gross
Income on your tax return.
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Most companies are staffed with a benefits manager who can give
you more information about your company's health
plans.
(Next Gem: Shop Around for Health Insurance)
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Life
