How can Taxes be Affected by Health Insurance?
There are certain ways by which any individual’s taxes can be affected by Health Insurance. Buying it or not buying it; either way the taxes are affected. The question remain, how are they affected?
It does not matter if you get your Health Insurance’s through an employer or you acquire it on your own. Taxes are affected all the same.
While it is true, Obamacare has made health insurance’s widely available. It is also true; it has made things more complicated in the tax seasons.
Where you Acquire Health Insurance, Affects your Tax Return
Review the following Two Scenarios;
Health Insurance Sponsored by an Employer
An employer can offer Health Insurance’s as a benefit to you. You will then pay a small cut of your pay as a premium. This payment is paid in pre-tax dollars. As a result, the amount is not subject to any taxes associated with Social Security or Medicare etc.
Privately Acquired Health Insurance
Your income level will determine which plan you qualify for. It will also determine if your premium tax credit can help offset monthly premiums. You may find yourself eligible for credit if your income is between 100 and 400 percent of the poverty line.
You can choose for the govt would to pay a portion of your premiums upfront. Or you can keep it as a potential subsidy to be used during tax return preparation. Upfront payments require you to estimate your future yearly earnings.
It might happen that you have made a mistake in the estimates and gotten more advance payments than necessary. in that case, you must pay back the difference while filing federal tax returns.
You can calculate your estimated annual income at healthcare.gov
A self-employed individual may apply for deduction of health insurance‘s for themselves and their immediate family.
The Penalties for not Acquiring Health Insurance
Some states have their own penalties with how they enforce the necessary long-term or short-term health insurance clause. The federal government used to fine non-health insurance carriers a specific amount under Shared Responsibility Payment. It has been abolished starting with 2019, under Trump administration.
However, theoretically, the government could still charge 2.5% of the gross income for an individual health insurance, or $695. A family of four could pay up to $2,085.
Ways to Maximize Health Insurance Tax Benefits
A health insurance plan offered by an employer is the best way to save maximum amount in taxes and premiums. In a way, it can also be called by many as, the best health insurance policy. You might want to delve into the specifics of the plans to make better informed decisions. Tax benefits can be further maximized through Health Savings Account (HAS), or Flexible Spending Account (FSA).
Health Savings Account
Also called HSA Account. It allows its buyer to set aside a set pre-tax money for qualified healthcare expenses. Keep in mind, it is a high deductible health plan.
If deductible for an individual health insurance’s comes at $1300 or more, or $2600 or more for a family, they qualify for HSA. Moreover, the out of pocket expenses must be kept lower than $6500 for individual health insurance plans and $13100 for a family.
Interest and disbursements earned through HAS are tax free. Moreover, they do not expire over the years, merely rolled over.
Flexible Spending Account
Also called FSA Account. It works similar to HSA. As it also allows you to set aside money from a paycheck for qualified medical expenses. There are also a few differences. They are listed below;
- There is no carry-over in FSA towards next year. The money set aside for it must be used during that year. Any left overs are lost at the end of year.
- The full amount for an FSA plan is revealed at the beginning of tax year. You must make regular payments into FSA plan throughout the year.
- Having an HAS and FSA at the same time is possible. It can only be done when you also possess a high-deductible health plan.
- Losing a particular job results in loss of FSA as well. The HSA is not affected by loss of a job. HSA goes with you.
You might take a hit filing the tax return if you do not have health insurance. You must make it a priority to gain health insurance. If the work of employment does not offer it, then acquire it privately. The tax breaks are designed by the government for your benefit. You must take advantage of them.
You can contact SG Financial Inc. for further information, as it is among the best health insurance companies. We have a long history of experience with these matters. We can guide you better and make you understand all the intricate points easier. Trust us to take responsibility for you and we won’t disappoint you.