10-12-2022 PTL - Flipbook - Page 25
A Special Advertising Section of Baltimore Sun Media Group | Wednesday, October 12, 2022 25
FINANCES
Funding part of
your health care
HSA and FSA
By Margit B. Weisgal, Contributing Writer
T
here are two options that let you use pre-tax money to pay for qualified medical
expenses, usually your out-of-pocket expenses or items not covered by insurance: a Health Savings Account (HSA) and a Flexible Spending Account (FSA),
also called a Flexible Spending Arrangement by the IRS. You do need to have health
insurance and, with an HSA, a specific type of health insurance. Both have tax advantages but there are lots of differences.
What are qualified medical expenses?
They include medical care, prescription
drugs, dental and vision care, over-thecounter medications, and other healthrelated items. Since COVID, PPE (personal
protective equipment) and home testing is
covered. For a complete list, visit the IRS
and download Publication 502. Make sure
it is for tax preparation for the year you
are filing.
FSA
A Flexible Spending Account is implemented by your employer, part of your
benefits package. The corporation needs
to set it up for its employees to participate.
In it, you can put money aside for your
medical expenses and those of others
who are part of your plan – your family,
usually. The bad news: should you change
jobs, the money does not go with you. The
company owns the account.
There is a maximum amount the IRS
allows for FSAs. According to the Society
for Human Resource Management (SHRM),
that amount was raised to $2,870 as the
annual contribution in 2022. With some
exceptions, you must use that money during the calendar year in which you participated. It does not roll over to the next year.
In other words, use it or lose it!
The way FSAs work is that you put a
certain amount of money aside for yourself and, if applicable, your spouse, and
dependents, into an account you can use
for what would be normal out-of-pocket
expenses, such as eyeglasses. The pretax amount you select, say $200 per pay
period, is withdrawn from your paycheck
so that by the end of the year, all $2,400 is
there. But – and this is an important advantage – once you’ve chosen this option, you
can access the full amount immediately.
Therefore, should you incur a medical bill
of $900, you can pay it.
HSA
Health Savings Accounts (HSAs) are
a little different. They are only available to
those who have a high-deductible health
plan. They can be created by an individual
or an employer, the money is yours, and
you can invest the funds in it. If you change
jobs, the account stays with you and if
you don’t spend the money, you can use
it later. Even if you change to a health plan
that is not a high deductible, you can still
use those funds; you just can’t add additional contributions.
A high-deductible health plan must
have a minimum deductible of $1,400 for
an individual or $2,800 for a family. There
are also two other requirements for an
HSA:
• You may not be claimed on anyone
else’s account as a dependent.
• You may not be enrolled in Medicare.
One other caveat: not all high-deductible health plans qualify for an HSA. Check
with your agent or employer to be sure.
Also, some employers contribute to HSAs,
similar to them contributing to a 401(K),
but that amount goes toward the contribu-
tion limit.
According to the IRS, the individual
HSA contribution limit for 2022 will be
$3,650 and the family contribution limit will
be $7,300. Contributions are either pretax money or tax-deductible so, as with
FSAs, you save on your income taxes. If
you invest the money (and you should),
earnings are not taxed either. When you
withdraw money from your HSA to pay
for qualified medical expenses, the money
is not taxed. But if you use the money for
any other purpose, that money would be
taxable and subject to penalties.
There are distinct advantages in having
an FSA or HSA. Both lower your tax bill,
which means more money in your pocket.
If, at some point, you age out and shift your
insurance to Medicare, the funds may still
be used then but you cannot add to the
account any longer.
One last note: individuals can set up
their own HSA with the appropriate highdeductible health insurance plan. It’s a
good way to ensure you have the money
for the deductible should you have a
major medical event, need hospitalization
or surgery.