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Insurance > Health Insurance
Details of the medical savings account program
The Associated Press. Associated Press.
Copyright Associated Press
Questions and answers about medical savings accounts:
Q: What is a medical savings account?
A: It is a tax-exempt account with a bank or an insurance company that lets you save money for future medical expenses. Participants must work for a small business or be self-employed, and hold a high- deductible health insurance policy. Interest or other earnings are tax-free; tax deductions can be claimed even if taxpayers do not itemize deductions. Contributions remain in the account from year to year until they are used.
Q: What is a high-deductible health plan?
A: Plans with a higher annual deductible than typical health plans; deductibles can range from about $1,550 for an individual to more than $5,000 for a family. Generally, medical savings account participants cannot have any other type of health plan. There are exceptions for plans that only cover accidents or dental care or a specific disease or illness.
Q: Who can contribute to the accounts?
A: Employers may make contributions; employees do not pay taxes on these deposits. Participants can make their own contributions and deduct the amounts on tax returns. Participants and employers cannot both make contributions to an account in the same year. There are limits to the amounts that can be contributed. Contributions do not have to be made every year.
Q: What about withdrawals from the accounts?
A: Tax-free withdrawals must be use to pay for qualified medical expenses. Examples include doctors' fees, prescription medicines and necessary hospital services. Withdrawals for other reasons could be subject to income tax and an excise tax. Withdrawals do not have to be made each year. They must be reported to the Internal Revenue Service on Form 8853.
Q: Are there rules for employers?
A: Employers who want workers to have the accounts must make high- deductible plans available to them. No other coverage can be offered unless it's an approved exception. Employers must make comparable contributions to employees who have same type of coverage and same category of employment, such as part-time or full-time. Contributions that are not comparable are subject to extra taxes.
Source: Internal Revenue Service
Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission.
Dateline: Undated
Text Word Count 352
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