Tuesday, April 04, 2006
Pre-Tax Savings and Health Savings Accounts (HSA)
Flexible Spending Accounts (FSA) let you use pre-tax dollars to pay for certain dependent care, health care, and transportation expenses that normally are paid for with after-tax dollars. This adds up to significant tax savings on qualified expenses. The important thing is: the expenses must qualify, so check out guidelines AND what qualifies as "supporting documentation."
Through my employer, my bus pass is a benefit and my parking permit can be paid for with pre-tax dollars, as long as I have a payroll deduction made for the monthly permit payment. Enrollment in the health care savings plan is an annual election and the tough thing is always deciding how much to contribute. (If you don't use all the dollars with the time specified by the plan, you lose them.) Contributions are made pre-tax out of each paycheck and reimbursements are submitted to a third-party plan administrator.
This year I signed up for the dollar amount equal to our family deductible. I'm glad I did because last week Bo had three visits to urgent care for a sprained ankle (not broken---we had x-rays) that developed into a serious staph infection. Even though I haven't contributed the full deductible into my HSA, I can claim that amount when the bill comes because I'll have to pay it through payroll deductions anyway.
Details available from IRS:
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 created a new, tax-advantaged way for certain people to save for health care expenses. You must be covered by a high-deductible health plan to open and contribute to a Health Savings Account (HSA). IRS and Treasury have provided guidance on how HSAs work. Related items and publications at the IRS site:
Posted by Tessa at Tuesday, April 04, 2006