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Whether you’re paying for hospital stays or prescription medicine, the cost of health care can quickly add up. If your employer doesn't offer health insurance or coverage is too expensive, the tab may be overwhelming. However, a health savings account (HSA) can help cover the outstanding balance. In addition to providing much-needed financial relief, tax preparation specialists say this resource offers other, unexpected benefits.

What Is a Health Savings Account?

How Does It Work?

tax preparationAn HSA is essentially an account created for users to contribute funds for a wide range of medical expenses. Account holders can either open one through their current employer or on their own at a bank or credit union. Individuals are allowed to contribute amounts up to IRS-established limits, which vary from year to year. Contributions limits are partially determined by age and familial status. To be eligible to open an HSA, the applicant must be enrolled in a high-deductible health plan and not have other health insurance coverage.

Once the HSA is opened, users will generally receive checks or a debit card linked to the account. From there, they can use the contributed funds to pay for copays, insurance deductibles—but not premium payments—and eligible medical expenses. These include everything from acupuncture to vasectomies. Tax preparation advisers may remind users that HSAs only pay for IRS-qualified expenses not already covered by an existing health insurance policy.

Why Should I Use an HSA?

For one, the unused funds in an HSA roll over each year, tax-free. Account holders don't have to pay taxes when they make withdrawals for qualified expenses. All HSA contributions are accounted for before your personal income is taxed, simplifying tax preparation. This means no taxes are taken out of your paycheck for HSA use.

Account holders who arrange for their contributions to flow directly from their paycheck won't have to worry about the funds being taxed by the Federal Insurance Contributions Act, commonly known as FICA. Certain government programs such as Medicare and Social Security are partially funded by FICA.

HSAs also offer exceptional portability. Unlike employer-issued health insurance plans that remain behind if you move to another company, an HSA can be taken with you. Some employers will even match employee contributions.

An HSA can be a financial lifeline when it comes to medical expenses. Plus, they offer several tax perks. The tax preparation professionals at Sharrard, McGee & Co., PA in High Point, NC and Greensboro, NC, continue to educate clients about the benefits of having an HSA. If you're interested in opening an account or have questions, call our High Point office at (336) 884-0410 or the Greensboro office at (336) 272-9777, and a friendly associate will gladly assist. Visit the website for information on the firm's full suite of services.

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