With medical expenses constantly increasing the Internal Revenue Service provides an option to use pre-tax money to pay for medical expenses not covered by other plans. Using pre-tax dollars though available IRS programs may help offset growing health care costs. IRS Publication 969 (2018) describes available tax-favored health plans
Health care Plans
High Deductible Health Plan (HDHP)
HDHPs have higher deductibles comparatively to other health care plans. However HDHPs allow utilizing tax free reimbursements for qualified medical expenses under a number of health care programs defined by IRS.
Programs allowing to offset health care costs
Health Saving Accounts (HSA)
There is a number of benefits in opening an HSA. Contributions made to an HSA can be claimed as tax deductible. In addition contributions to person’s HSA by an employer may be excluded from person’s gross income. An HSA stays with an account holder upon changing employers or leaving the work place. Participation in an HSA requires coverage by a high deductible health plan (HDHP). IRS publication 969 (2018) provides a list of requirements in order to be qualified for an HSA and related regulations.
Medical Savings Accounts (Archer MSAs and Medicare Advantage MSAs)
Archer MSA are intended to help self-employed individuals and small business employees to meet medical costs of the account holder and account holder’s spouse and dependents. An archer MSA is an option to save pre-tax money for future medical expenses. In order to be qualified for an Archer MSA maintaining a HDHP is required. IRS publication 969 (2018) provides a list of requirements to be qualified for an Archer MSA and related regulations.
Health Flexible Spending Arrangements (FSAs)
FSAs allow participants to get tax free reimbursed for qualified medical expenses. An FSA can be used to pay for qualified medical expenses even before placing funds into the account. IRS publication 969 (2018) provides a list of requirements to be qualified for an FSA and related regulations.
Health Reimbursement Arrangements (HRAs)
HRAs is an optional arrangement funded solely by an employer. Employee’s reimbursements may be tax free for qualified medical expenses. Unused amounts in employee’s HRA can be carried forward for reimbursement in the future. IRS publication 969 (2018) provides a list of requirements to be qualified for a HRA and related regulations.