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Be Tax Smart During Open Enrollment
It's Open Enrollment time!
Here are some thoughts about this year's Open Enrollment Season!
The most despised provision of Obamacare was the Individual Mandate. The individual mandate forced you to pay an additional tax if you didn't maintain medical insurance for a required period of time.
The Good News - This provision has been repealed on the Federal(IRS) level.
The Bad News - The State of California has implemented their own version of the individual mandate for the 2020 tax year.
Since California residents will have to have coverage in 2020 or pay a tax penalty, What are tax smart ways to provide coverage for yourself and your family?
In 2019 and future years, out of pocket medical costs will have to exceed 10% of your Adjusted Gross Income before they will be deductible on Schedule A - Itemized Deductions.
What if you can pay your out of pocket costs with money you have already deducted before you ever calculated your Adjusted Gross Income? There is a way!
Look for an HSA Qualified medical plan during this year's open enrollment! HSA stands for Health Savings Account. Once you are covered by an HSA qualified plan, you can open a health saviings account and contributions to this HSA account can be deducted on your tax return similar to an IRA. You get a tax deduction on your federal income tax return before you calculate your Adjusted Gross Income, so it may help lower your taxes in other parts of your return as well!
Money you contribute to your HSA will earn interest tax free as long as those funds are used to pay for qualifed medical expenses, normally the same types of expenses you'd normally deduct on your Schedule A - Itemized Deductions. Unlike a Flexible Spending Arrangement(FSA) there's no requirement to "use it or lose it". Once you make a contribution to the HSA (either by you or your employer), those funds are yours to use. It's important to use the funds for medical expenses or there's a penalty of 20% for funds that are taken out of the HSA and used for other things not related to medical costs.
Check with your Human Resources Administrator to see if you will have an HSA available to you this open enrollment season. You can find HSA plans through Covered California and you can purchase them iindepently if you buy your medical insurance separately not thru work or through Covered California.
Here's a little video that will tell you a little more about HSA's.
Dan Peterson | 10/23/2019
Express Income Tax Services | 6010 Commerce Blvd. Suite 142, Rohnert Park, CA 94928 | Phone: (707)584-8989 | Fax: (707)595-4725 | firstname.lastname@example.org