Your taxes are affected when you buy health insurance, and when you don’t.
Despite the source of your health insurance either through an employer or the Health Insurance Marketplace, it is essential to comprehend how health insurance affects taxes so that you are better equipped to file your tax return.
The Affordable Care Act (ACA), the law spread the availability of health insurance for some people. But it also complicated things for some people during tax season.
The source of your health insurance can make a significant change in the way it affects your tax return.
If your employer offers If health insurance is provided as a benefit and you pay a part of the plan’s premium, your portion of the bill is funded with pre-tax dollars. It implies that the amount is not subject to withholdings for federal or state income tax, or Medicare taxes, and Social Security.
Amount of federal and state income taxes withheld can be evaluated by your income rate and a number of allowances you claim on your W-4 form.
If your employer does not offer your health insurance or if you are self-employed, you can gain access to health insurance policy via HealthCare.gov
You may be eligible for the premium tax credit to help balance the cost of your monthly premiums depending on your income level. The amount of the credit is on a sliding scale, and you are considered qualified if your yearly household income is at least 100 percent but not above 400 percent of the federal poverty line for the size of your family.
Payment of a portion of the insurance can be based on your decision done by the federal government on your behalf, or you can get a subsidy when preparing your return. Since it can be difficult to calculate future income, you might receive more advance payments than you qualify. If this is your situation, then you would have to make payment of the difference when you file your federal income tax return. Healthcare.gov produces available guidance on valuing your expected household income. You could get the services of an accountant to help estimate future revenue.
If you can afford health insurance and are not in the category of the exemptions that permits you to forego buying it, you must possess health insurance that fulfills the requirement under the ACA. A penalty sometimes referred to as ‘shared responsibility payment’ can be applied on you. It is estimated based on a percentage of your household income or per individual in your household. An online calculator can be used in the calculator. The Tax Cuts and Jobs Act of 2017 cut the amount of the penalty to zero for tax years commencing after Dec. 31, 2018.
If you are offered a health insurance plan by your employer, you will likely get the most savings there between taxes and monthly premiums.
An HSA account permits you to set aside pre-tax money to use for eligible healthcare expenses, but your contributions can only be made to an HSA if you possess a high-deductible health plan
At the year 2017, your health insurance plan is eligible for a high-deductible health plan if your deductible is at a minimum of $1,300 for a person and $2,600 for a family. Also, the plan’s total out-of-pocket expenses can’t exceed $6,500 for a person and $13,100 for a family for in-network services.
Note that you can also be eligible for an HSA if you get your health insurance via the Health Insurance Marketplace.
The interest gotten in an HSA is tax-free, likewise the disbursements. Funds are rolled over from a year to another year, so there is no need to panic about the expirations.
FSA is similar to the HSA; an FSA permits you to set aside money from your paycheck pre-tax to pay eligible medical expenses. Nevertheless, few differences abound;
You set up an FSA plan at the start of the year and must use the funds within that year. Money remaining in the FSA at the end of the year is lost. The total amount of the FSA plan is made available at the commencement of the year, and you are to make payments into the program throughout the year.
If you lack health insurance, you may take a hit when you file your tax return. If your job does not give you access to health insurance, the Health Insurance Marketplace can enable you to compare eligible health plans in your state. Hence you can make use of the tax breaks available to you.
Advanced Accounting & Tax Planning