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Everyone knows that it’s smart to take care of your health so you feel good, look good, and live the lifestyle you want. Interestingly, studies have also shown strong connections between our health and our wealth.
For instance, did you know that being overweight can cause you to earn much less over your career? Likewise, getting regular exercise can make you more successful and even command higher wages.
In this episode, I’ll cover seven money-saving fitness and health tax breaks to help you take charge of your health and your wealth..
Savings Tip #1: Use a Health Savings Account (HSA)
Surveys continue to show that too few Americans take advantage of health savings accounts or HSAs. Either they just don’t know that they exist or they underestimate how much tax savings they offer.
You can only use an HSA if you have a high deductible health plan. However, more Americans are choosing these plans because they’re more affordable. With insurance, the higher your deductible, the lower your premium will be.
One of the requirements for a high deductible health plan is that it must have an annual deductible that’s at least $1,300 for individual coverage or $2,600 for a family plan.
Contributions to an HSA can be made by anyone, including you, a family member, friend, or employer. There are annual contribution limits, just like with different kinds of retirement accounts.
For 2015, you can contribute up to $3,350 if you have individual coverage or $6,650 for a family plan. Contributions to an HSA, other than those from an employer, are deductible on your tax return, no matter if you itemize deductions or not.
You can take distributions from the account to pay for medical expenses—such as doctor co-pays, prescriptions, and supplies—before your deductible is satisfied and your health benefits kick in.
You can also use HSA funds for a long list of other types of expenses, even if you don’t have insurance for them, such as going to a dentist, ophthalmologist, chiropractor, or psychologist. One of my favorite ways to use HSA money is to get new pair of prescription sunglasses every couple of years.
As long as you spend the money in your HSA on qualified medial expenses, the funds are never taxed.
As long as you spend the money in your HSA on qualified medial expenses, the funds are never taxed. That means if your average income tax rate is 25%, you get an immediate 25% discount on all your out-of-pocket medical expenses. That’s huge!
But if you spend money in an HSA on non-qualified expenses, the amount you withdraw will be subject to income tax plus a 20% penalty.
If you change insurance and no longer have a high deductible health plan, you won’t be eligible to make new contributions to your HSA, but you can still spend the money on qualified medical expenses.
I’ve switched back and forth from a high deductible plan to a regular plan several times and it’s easy to continue spending your HSA money until it runs out and you cancel the account. Later on, if you switch back to a high deductible plan you can begin making contributions again to your existing HSA or open up a brand new one.
Another benefit of an HSA is that you don’t have to take any distributions each year; you can let the savings accumulate indefinitely without penalty.
Find out if your health insurance qualifies as a high deductible plan. If so, open up an HSA and begin funding it as soon as possible so you can get a tax break on your next medical expense.
Savings Tip #2: Use a Health Flexible Savings Arrangement (FSA)
Flexible spending arrangements have some similarities to HSAs, but are only offered by employers. An FSA allows you or your employer to make contributions on a pre-tax basis, usually through payroll deductions. For 2015, eligible employees can contribute up to $2,550.
As long as you spend FSA funds on qualified medical expenses, they’re never taxed. So, just like with an HSA, you save an amount equal to the income taxes you would have paid on the money.
But unlike an HSA, an FSA is a “use-it-or-lose-it” plan. That means you generally must empty the account every year or only carry over a small amount, while funds in an HSA can roll over from year to year without penalty.
Savings Tip #3: Claim Medical Tax Deductions
There are many qualified medical expenses that you can pay for using an HSA or an FSA. But what if you don’t have one of those accounts—or you have expenses that exceed your balance?
Well, the IRS still gives you the opportunity to get a break by claiming medical expenses as deductions on your tax return. However, the catch is that you must itemize deductions, instead of taking the standard deduction for your tax filing status.
To know whether to itemize or not, find out if your total deductions exceed the standard deduction, otherwise you won’t save money. For instance, for 2015, the standard deduction is $6,300 for singles and $12,600 for joint filers. If you’re single and have more than $6,300 in tax deductions to claim, make sure you itemize them on Schedule A, instead of claiming the standard amount.
When you itemize, you can claim medical expenses paid for yourself, your spouse, and dependents, unless they’re already excluded from your taxable income, paid for using your HSA or FSA, or were reimbursed to you. In other words, you can’t double dip and get a tax deduction twice.
Another important point with medical deductions is that you can only claim amounts that exceed 10% of your adjusted gross income. For example, let’s say your AGI is $50,000 and your medical expenses for the tax year are $6,000. You could deduct the amount over $5,000, or $1,000. If your medical expenses are less than 10% of your income, then you can’t deduct any of them.
There’s a long list of expenses that qualify for a tax deduction, and some of them may surprise you, such as acupuncture, weight-loss programs, and transportation. You can even claim the cost of your health insurance premiums if you pay them as an individual—but not if they’re paid on a pre-tax basis from your paycheck at work.
I encourage your to take a look at the full list of deductible costs found on IRS Publication 502, Medical and Dental Expenses. They don’t include expenses meant to improve your general well-being or appearance, like a gym membership, vitamins, cosmetic surgery, or a well-deserved beach vacation. But there are probably many medical expenses that you might not realize are deductible.
Savings Tip #4: Max Out Your Benefits
Health plans benefits, such as free preventative checkups and deductibles, are tied to an annual schedule. That means you need to pay attention to the calendar in order to max out your benefits.
For instance, if you burn through your health deductible and need a medical procedure, make sure to get it before the end of the year. If you wait until the following year, you could end up paying more than you have to.
In other words, take advantage of the time each year after you reach your deductible so you can get your insurance company to pay for as much of your medical expenses as possible.
If there are capped benefits, like a certain number of therapy sessions or an allowable amount of dental work, get part completed in December and the rest in January, in order to take advantage of 2 years’ worth of benefits.
And don’t skimp on the free preventative appointments, like annual physicals, well-woman visits, mammograms, prostate screenings, dental cleanings, and eye exams. Insurer Cigna found that on average only about half of workers take advantage of free preventive checkups and tests.
I know medical appointments can be time consuming—just remember how lucky you are to have benefits to begin with, and don’t squander the opportunity to improve or monitor your health for free.
Savings Tip #5: Use Wellness Programs at Work
Many employers understand that healthy workers are good for the company’s bottom line. It’s not uncommon for large organizations to offer financial incentives for losing weight, walking a certain number of miles, completing online health counseling, taking annual biometric screenings, or using an in-house gym.
Typical employer rewards include gift cards, additional contributions to your HSA or FSA, or even extra vacation time.
Savings Tip #6: Use Healthcare Subsidies
If you don’t have health insurance through work or on your own, remember that you’re legally required to have it. According to the Affordable Care Act, also known as Obamacare, if you can afford heath insurance but choose not to buy it, you’ll be subject to a tax penalty.
The amount of financial assistance you can get depends on your income compared to the Federal Poverty Level. For 2015, the poverty level varies from just under $12,000 to about $41,000, depending on the state where you live and the number of people in your household.
In most states, if you earn less than 400% of the Federal Poverty Level, you can get tax credits, which reduce your monthly health insurance premium.
That means if you’re single with no dependents and earn less than about $48,000, you may qualify for a healthcare subsidy. Or if you’re a family of 4 and earn less than about $100,000, you may also qualify for assistance.
The next open enrollment period to get health insurance for 2016 begins November 1, 2015 and ends January 31, 2016. So if you remain uninsured, don’t miss the opportunity to investigate your options and get the health coverage you need to protect your health and your finances.
Savings Tip #7: Scrutinize Your Bills
My last tip to save money on healthcare and fitness is to be super diligent about reviewing your medical bills. If you don’t understand a charge, don’t pay it until the medical provider and your insurance company can explain why you owe it. Claims can be denied due to administrative or coding errors. It’s not uncommon for medical bills to contain errors—and they rarely work in your favor. If you’re having trouble fighting an incorrect bill, get help from a claims specialist. Use a site like Claims.org to find a professional who will help you deal with the insurer, doctor, and file an appeal if necessary.
If you’re ready for help managing debt, building credit, and reaching big financial goals, check out Laura’s private Facebook Group, Dominate Your Debt! Request an invitation to join this growing community of like-minded people who want to take their financial lives to the next level.
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