It's a TRICK! The Social Security Administration announced that more than 65 million recipients will get a 2% cost-of-living adjustment (COLA) in 2018, after receiving a measly 0.3% boost in 2017 and no increase for inflation in 2016. That means the average benefit for a retired worker will rise by $27 a month to $1,404 in 2018 while the average benefit per retired couple will grow $46 a month to $2,340. But many recipients will find most or all of that increase eaten up by a jump in the Medicare Part B premiums deducted from their monthly Social Security checks...
Health savings accounts (HSAs) are now more popular than ever. According to a recent survey, the number of HSAs has surpassed 21 million, and the accounts now hold about $42.7 billion in assets.
Here’s a very tight summary of how the HSA works for you:
* Deduct the health insurance cost. To enable the HSA, your health insurance must be a high-deductible health insurance policy. Sole proprietors, partners, and S corporation owners can qualify to deduct this high-deductible insurance on page 1 of Form 1040. (The page 1 Form 1040 deduction does not suffer the 10 percent haircut that applies to itemized medical deductions.)
* Deduct the HSA contribution. For 2017, you can make a deductible HSA contribution of up to $3,400 if you have qualifying self-only coverage, or up to $6,750 if you have qualifying family coverage (anything other than self-only coverage). The deduction for the contribution is above the line, so it does not suffer from phaseouts and it’s deductible whether you itemize or not.
* Tax-deferred earnings. The monies accumulated in your HSA grow and compound tax deferred (or even tax-free if you withdraw correctly).
* Tax-free withdrawals. Withdrawals from your HSA are tax-free when you use the monies to pay for qualified medical expenses. You can’t pay your high-deductible premiums with HSA funds. But once you reach Medicare age, you can use the withdrawals for Medicare premiums in addition to other qualified medical expenses.
* Retirement withdrawals. You can make your HSA work like a traditional IRA after reaching Medicare age. To make this happen, you just withdraw funds from the HSA and don’t use them for medical expenses. This triggers the federal income tax but no penalties.
The IRS updated its page on health care reporting requirements to inform taxpayers and tax practitioners that it will not accept electronically filed 2017 individual income tax returns unless taxpayers indicate that they and everyone on their return had health care coverage, qualified for an exemption from coverage, or will make a shared-responsibility payment (under Sec. 5000A). The IRS also said that any returns filed on paper that do not address the health coverage requirements may be suspended until the Service receives additional information, and any refund due may be delayed. This filing season will be the first time the IRS has enforced this requirement and will not accept tax returns that omit this information. Last filing season, President Donald Trump’s administration issued an executive order directing the government to limit any burdens imposed by the Patient Protection and Affordable Care Act, P.L. 111-148, pending repeal. In response, the IRS did not enforce the health care reporting requirement on 2016 returns filed in 2017, although taxpayers were still required to pay the shared-responsibility payment if they did not have coverage or qualify for an exemption. This year, however, the IRS and the Taxpayer Advocate Service have determined that enforcing the rule when taxpayers file will make return filing easier on taxpayers and also reduce refund delays.
The Internal Revenue Service has announced the annual inflation adjustments for a number of tax-related provisions for 2018, including, of course, the latest tax rate schedules and tax tables. These are the rates and deductions that will occur for the upcoming tax year, and your tax return that will be filed in 2019. These rates are subject to change if any kind of tax reform goes into effect, but as of now, this is what the changes will look like. Not included in this article, is the announcement that 401(k) contribution limits will go up to $18,500.
Is there a certain tax or financial topic you would like to see in next month's newsletter? Let us know!!
Hammernik & Associates
2448 S. 102nd Street #130
West Allis, WI 53227