FSA or HSA: Which Offers the Best Tax Advantages?

FSA or HSA: Which Offers the Best Tax Advantages?

Flexible Saving Accounts (FSA) and Health Savings Accounts (HSA) can be used to pay for qualifying out-of-pocket expenses with tax-free dollars. But the IRS rules governing these accounts differ significantly. For example, FSA funds must be spent each year or you lose the money, while funds in a HSA rollover from year to year. Consider these factors when weighing your options.

Flexible Savings Accounts

If you have work-based coverage, you can use a FSA to pay for deductibles, copayments, some medications, certain medical equipment and other health care costs. You don’t pay taxes on FSA contributions, which are limited to $2,550. Employers can (but are not required) to contribute to your FSA.

Under IRS rules, FSA funds must be spent by a certain date or you forfeit the money. Employers, however, have the option to allow a $500 rollover to the next year. So before choosing a FSA, carefully review your medical needs and potential or planned costs for a given year.

Health Savings Accounts

To open a HSA, you must be under age 65 and have a plan with a high deductible of at least $1,300 for an individual and $2,600 for a family. HSA contributions and accrued interest are tax-free. The maximum contribution is $3,350 for individuals and $6,750 for families. If you are 55 or older, you can contribute an extra $1,000. The account belongs to you, whether you open a HSA on your own or through work.

Unlike a FSA, unspent funds can remain in a HSA from one year to another. Once you reach retirement age, a HSA converts to a typical individual retirement account. HSA funds can pay for deductibles, copayments and other health care costs. But if the money goes toward non-medical expenses, you must pay an income tax and a 20% penalty.

Make sure to take these factors into consideration when weighing out your options.

Have more questions about the FSA or HSA and how it impacts your taxes and finances? Don’t sweat it,  Rapid Tax has you covered.

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All You Need to Know About Advanced Premium Tax Credits

All You Need to Know About Advanced Premium Tax Credits

Americans often wonder what exactly an advanced premium tax credit (APTC) is and how it could offset the costs of a health insurance plan. To start, if you have purchased or are considering purchasing Marketplace insurance, you may be one of the millions of Americans eligible for an APTC to help pay for health insurance premiums.

How does it work?

Using your projected annual household income and household size, the Marketplace estimates what your 2016 premium tax credit will be when you apply. The process to determine your premium tax credit also depends on several variables like marriage status, location, dependents, etc.

What does this mean for my taxes?

Starting in February, all Marketplace enrollees will receive Form 1095-A which will include information regarding your health insurance coverage such as your monthly premium cost, the date you were insured, and your APTC.

When you file your 2015 taxes with Rapid Tax, you will enter the information from the Form 1095-A just like you would a W-2. Rapid Tax calculates the APTC’s you were eligible for based on your actual income and family size.

What if I calculated incorrectly?

If you overestimated your income when you applied for a subsidy, you may see a larger tax credit on your taxes if you took your health insurance tax credits up front on the Marketplace. However, if you underestimated, you may see a lower tax refund and in some cases you may owe money back. It may be possible to reduce your income and avoid paying back and APTC if for example you pay into your IRA before April 15th.

Moving forward for 2016, in order to receive the most accurate APTC, make sure to notify the Marketplace about any changes in your circumstances as soon as they happen. And if it’s possible, Rapid Tax recommends only taking half of the APTC up front to avoid any surprises come tax time.

Some of the changes in circumstances that can affect the amount of your ATPC and should be reported to the Marketplace include:

-Increases or decreases in household income
-Marriage/Divorce
-Birth or adoption of a child
-Other changes in household composition
-Gaining or losing eligibility for government-sponsored or employer-sponsored health care coverage
-Change of address

Have more questions about the Affordable Care Act and how it impacts your taxes and finances? Don’t sweat it,  Rapid Tax has you covered.

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Business Trips: The Big Does and Don’ts of Tax Deductions

Taking the family along on a business trip this summer? Learn how to save on your taxes and take the tax deductions you’re entitled to on your working vacation.

It’s tricky to mix, but with the right mindset and careful planning, you can save big on your next vacation.

Business Trips: The Big Does and Don’ts of  Tax Deductions

While a few extra days to hang out won’t disqualify tax deductions, you still have to be careful with what you claim.
-Transportation: Renting a car and driving to your destination. This will be tax deductible since the main purpose is for the work/conference. If you’re flying to a location, your ticket is tax deductible, but not your family (unless they are employees).
-Hotel: Since you'll be sharing a room, during the conference this expense is also tax deductible. Again, if you had separate rooms, only yours would be eligible as a business expense. Please also remember that if you’re upgrading your room because of your family, then that’s not deductible.
-Meals: Since you're attending the conference your meals can be deducted (50%), but not your family’s.
-Business Expenses: With traveling, you may be hit with some extra expenses like internet at the hotel, dry-cleaning (related to business), and taxis to and from the conference or business meetings.
As long as you claim travel expenses directly related to your business trip and don’t go overboard with your trip expenses you should be fine.

If you’re looking to be smart with your money during vacations, here are some ways you can have a fun trip without going into debt and how to save on vacation taxes.

While you can’t completely write off the trip, it’s nice to claim what you’re entitled to and save some money.

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Check Your Tax Withholding

Getting married is one of those life events that can throw your financial plan into disarray, but financial planning doesn’t have to be daunting after marriage. People have been getting married for years.

If you got married this year or are simply planning to, your tax situation will change significantly and careful planning today can mean you save as much as possible next year.

Check Your Tax Withholding
The first item on the list should be adjusting your tax withholding with your employer.

When you are newly married, your income tax liability will change depending on your spouse’s income. It can be higher or lower and adjusting your withholding will ensure you don’t over or underpay your taxes.

For example, if your spouse isn’t working, you’ll see a tax savings as a result of being able to add an additional personal exemption – $4,000 in 2015 and $4,050 in 2016 – without a corresponding increase in income. You’ll also be able to double your standard deduction from the $6,300 that it would be if you are filing individually, to $12,600 under married filing jointly. All of that will lower your taxable income, and therefore your tax bill.

If it looks like your tax liability will be lower this year, then you can increase your W-4 allowances. This will lower income tax withholding from your paycheck, and improve your cash flow immediately.

If your spouse brings in an income, particularly one that is comparable to yours or higher, you may see a higher total tax liability. Your spouse will also have withholding to adjust.

Work with your company’s HR department or payroll department to change your withholding.

Tax planning is all about advanced preparation, and marriage is one of those events you can see coming so plan as much as you can today.

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