Today TaxMama hears from Erin in Washington State who wants to know. “According to the Tax Relief and Health Care Act of 2006, it seems that you can fund your HSA even you have a very good low deductible insurance plan. Is that true? My husband works for Microsoft and we have one of the best insurance plans of the country. The only expenses we need to pay out of pocket are for supplements?”
Dear Erin,
It looks like you’re devoting time to getting educated about taxes.
When it comes to HSAs, they were specifically designed to make it more feasible for folks who have no insurance at all to buy policies. Or those whose employers have cut their benefits drastically, by paying for high deductible policies.
So those of us with husbands working for employers who offer great policies…we don’t qualify for HSAs.
The provision of the new Tax Act that you’re thinking about reads as follows:
- For taxable years beginning after December 31, 2006, § 303 of the Act amends § 223(b) to provide that the maximum annual HSA contribution is the indexed statutory amount, without reference to the deductible of the high deductible health plan. https://www.ustreas.gov/offices/public-affairs/hsa/pdf/rp-2007-36.pdf
That’s refers to the maximum contributions you’re allowed to make. It doesn’t mean you may establish an HSA when you already have excellent coverage.
You can handle the supplements by projecting how much you expect to pay, or normally pay each year – and using Microsoft’s flexible spending account. That’s even better than the HSA because the amounts come right off the top of your husband’s wages – and are not subjected to any payroll taxes or income taxes at all.
And remember, you can find answers to all kinds of questions about Health Savings Arrangements, and other tax issues, free. Where? Where else? At TaxMama.com
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