How to Get the Best Healthcare and More From Your Tax Return

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Healthcare and taxes are complicated, and combining those decisions might not seem like the most obvious choice. However, you can save even more money by understanding the impact your healthcare choices have on your taxable income.

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Annual open enrollment and tax season seem like completely unrelated events. What could one have to do with the other? Actually, with recent changes in healthcare coverage requirements and tax-free healthcare savings, the choices you make when selecting your healthcare plan have a direct impact on your yearly tax savings.

Health Insurance Plan Options

How and where you are purchasing health insurance might have an impact on your tax liability:

  • If you have a Marketplace Health Plan, you might be eligible for a tax deduction or additional tax refunds, depending on whether your actual income was more or less than you estimated on your insurance application. In order to get started, Form 8962 is essential for determining whether you will receive a refund or owe more in taxes if you have a Marketplace plan.

  • If you are self-employed, you have likely selected an individual plan or a plan on a Marketplace exchange. In either case, you are likely paying your premiums out-of-pocket. Consult with a certified tax professional to see if your health insurance premiums are tax-deductible.

  • If your health insurance is provided by your employer, you are likely already making pre-tax benefits contributions. If you are not sure, check with your benefits administrator to confirm you are taking advantage of pre-tax benefits contributions.

  • No matter how you have acquired healthcare coverage, there are additional ways to save tax-free funds for healthcare expenses. We will show you how to qualify (and get started).

Tax-Free Health Savings With an HSA

There is only one dedicated way to save tax-free money for healthcare costs - the Health Savings Account (HSA). Think of an HSA like a 401(k) for healthcare, but better.

An HSA or Health Savings Account is a personal savings account for health expenses. HSAs are owned by individuals (not employers) and can be transferred from job to job or institution to institution, similar to a 401k or IRA. An HSA is not a healthcare plan, but can (and should) be used in conjunction with all high-deductible healthcare plans (HDHP) in the US. Paying for healthcare costs with your HSA means that you are saving 35% off the retail cost (assumes 35% combined state and federal income taxes). You might ask, “Wait, what, how?”

Three magical words: triple tax benefits. HSAs allow for tax-deductible contributions, tax-free interest, and tax-free qualified medical expense withdrawals which means you can use tax-free money from your HSA to pay for health expenses. This is an incredible way to minimize real health cost increases year-over-year.

The benefits of an HSA are not only measured in financial gain, but also in the unique ability to create flexibility in a stringent healthcare market. With an HSA, you can save for today and tomorrow.

Save Tax-Free Money This Year

If you're reading this before April 15th, you can still make a 2019 HSA contribution. HSAs have some flexibility as to when you can make contributions for a particular year. The 2019 HSA contribution limits were $3,500 for individuals and $7,000 for families, but that amount didn’t have to be contributed in fiscal year 2019.

Thanks to prior year contributions associated with HSAs, you can make a contribution up to the tax filing deadline, typically April 15th of the next year. A prior year contribution is one that is applied to the previous year’s limit. This means you can contribute up to $7,000, 100% tax-free for 2019. Don’t delay, you only have until April 15th, and the clock is ticking.

If you already have an HSA and need help getting started, you can download our free HSA tax form checklist here.

How to Get Ahead on Next Year’s Taxes

  1. Forecast your healthcare needs and expenses - In order to select the most personalized health insurance plan, you need to forecast your costs and the coverage you need to see which plan is right for you. Check out our health plan comparison calculator; it lets you compare and project estimated healthcare costs for two different plans. We will help you pick the plan that is most economical and works best for your expected health usage.

  2. Find the best plan - Finding the best health insurance plan for yourself or your family could save you money, time and finally grant you peace of mind for all your health expenses. Balancing your short-term health costs with long-term health savings is an important consideration during open enrollment season (November 1 to December 15 in most states). Find the plan(s) that work best for you or your family so you can afford healthcare today, get the coverage you need, and build health savings for years to come. If you are considering a Marketplace plan, a site like HealthSherpa allows you to quickly and efficiently compare plans and prices all in one place.

  3. Make sure your health plan is HSA-Eligible - A plan that meets all of these requirements is known as a qualified high-deductible health plan. You may often see it referred to as an HDHP. You can review the full list of HSA-eligibility details here.

  4. Healthcare and taxes are complicated, and combining those decisions might not seem like the most obvious choice. However, you can save even more money by understanding the impact your healthcare choices have on your taxable income. The result is more tax-free savings to use for your expected and unexpected healthcare costs. As United States healthcare costs continue to rise, you can use your tax-free health savings to further reduce your out-of-pocket costs.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

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