If you have a high deductible health coverage plan and are not on Medicare, a Health Savings Account (HSA) may be an option to help you pay medical expenses. You can claim a tax deduction for contributions you make to the account, earnings can accumulate tax-free, and distributions from the account are not taxable if you use them to pay qualified medical expenses.
There are different types of health-care savings programs that offer certain income tax advantages in order to save for, and offset the cost of health-care. These programs may be sponsored by employers, and are generally also available to self-employed individuals.
Tax-Favored Health Plans
These plans include:
Health Savings Accounts (HSAs),
Medical Savings Accounts (MSAs, including Archer MSAs),
Health Flexible Spending Arrangements (FSAs), and
Health Reimbursement Arrangements (HRAs).
Who Can Make Contributions?
There are some differences among these programs regarding who can make contributions to the account:
Health Savings Accounts: The eligible individual or any other person, including the employer or a family member, can make contributions. Contributions, except those made by the employer, are deductible on the eligible individual’s income tax return, without having to itemize deductions. Employer contributions are not included in the person’s income.
Archer Medical Savings Accounts: The eligible individual and the employer can both make contributions, but not in the same year. Contributions by the individual are deductible without having to itemize, and employer contributions are not included in income.
Health Flexible Spending Arrangements: Contributions can be made by both the eligible individual and the employer. The individual’s contributions are deducted from his or her salary and while they are not deductible, they are not subject to income tax or payroll taxes. The employer’s contributions are not included in income.
Health Reimbursement Arrangements: Only the employer can make contributions, and these are not included in the eligible individual’s income.
For all these programs, distributions from the accounts that are used to pay qualified medical expenses are not taxable.