Don't Mess With Taxes

    
Welcome to Part 5 of the ol' blog's series on 2018 inflation adjustments.
Today we look at changes to some medical tax provisions.
You can find links to all 2018 inflation posts in the first item:
Income Tax Brackets and Rates.
Note: The 2018 figures apply to 2018 tax returns that are due in 2019.
New tax laws also have altered some of the 2018 amounts and are noted in the post below.
For comparison purposes, you'll also find 2017 amounts to be used
in filing 2017 tax returns due next April.

Lucille Ball in "I Love Lucy" via Giphy.com

The only thing worse than being sick is having to pay for medical treatment.

One remedy that could help your pocketbook if not your ailment is the Internal Revenue Code. There are some tax code provisions that can help cover some medical costs.

And many of those medically-related tax laws also are adjusted each year for inflation.

For the coming 2018 tax years, below is how inflation will affect such tax provisions covering flexible spending accounts, health savings accounts, long-term care policy premiums and even the amount of penalty you could face if you don't have insurance coverage that meets Affordable Care Act (ACA) requirements.

And yes, Obamacare is still in effect and the Internal Revenue Service will enforce the health care law's tax provisions.

Flexible spending account (FSA)
A medical flexible spending account, or FSA, is a great and tax-saving way to pay for health costs that aren't covered by your insurance. How much you put into this workplace benefit also is indexed for inflation.

The base FSA amount for a health-related account was set at $2,500 when the ACA became law. That law also allows for the possibility that the FSA limit could increase depending on inflation.

For the 2018 tax year, you can put up to $2,650 in your FSA. That's $50 more than the $2,600 limit in 2017.

Health Savings Accounts (HSAs)
Sometimes the cost of health insurance makes you feel worse than things that drive you to the doctor. That's why some folks opt for a high-deductible health plan, or HDHP.

The premiums for an HDHP tend to be lower. The downside it, though, that you have to pay more to reach hat high deductible amount before the insurance coverage kicks in.

The tax code offers some help in dealing with an HDHP's high out-of-pocket costs. You can open an associated Health Savings Account, or HSA, to pay for your larger deductibles.

The tax benefits of an HSA include:

• Fully deductible contributions up to the legal limit,
• Untaxed withdrawals when used to pay qualified medical expenses, including dental and vision treatments,
• Tax-free interest on the earnings as long as the money is used to pay qualified medical expenses, and
• No requirement that HSA money be used or forfeited by a certain deadline.

The IRS actually announced the 2018 inflation adjustments for HSAs earlier this year.

UPDATE: However, following enactment of tax law changes in the Tax Cuts and Jobs Act (TCJA) that took effect in 2018, some of the inflation amounts were revised in March 2018. 

The table below shows the HSA contribution and maximum out-of-pocket limits for high-deductible coverage for the 2017 and 2018 tax years. Due to the revisions issued by the IRS, the original amounts that were changed are noted by strike through of the amounts, with the new amount following.

Contribution and Out-of-Pocket Limits 
for Health Savings Accounts and High-Deductible Health Plans

Medical Savings Accounts (MSAs)
Another tax-favored medical savings account is the aptly named Medical Savings Account, or MSA. This account also is known as an Archer MSA, named after former Texas Republican Rep. Bill Archer. These also were affected somewhat by the new tax law inflation changes.

The new amounts are shown after the original inflation bumps, which as in the HDHP/HSA section are indicated with a strike through the amounts.

Archer MSAs were created to help self-employed individuals and employees of certain small companies meet medical care costs. But since 2007, they have essentially been replaced by HSAs. (Details on the accounts can be found in IRS Publication 969.)

For tax year 2018, the IRS says that participants who have self-only coverage in an MSA, the plan must have an annual deductible that is not less than $2,300 (an increase of $50 from tax year 2017), but not more than $3,450 (an increase of $100 from tax year 2017).

For self-only coverage, the maximum out-of-pocket expense amount is $4,600 $4,550 in 2018, up $100 $50 from 2017.

For tax year 2018, participants with family coverage, the floor for the annual deductible is $4,600 $4,450, up slightly from $4,500 in 2017. However, the deductible cannot be more than $6,850, up $100 from the limit for tax year 2017.

For family coverage, the out-of-pocket expense limit is $8,400 for tax year 2018, an increase of $150 from tax year 2017.

Long-term care coverage premiums
In addition to medical insurance, many folks buy long-term care insurance to help them pay for the assistance they might need, in their own homes or in an eldercare facility, when they are older.

Premiums for a long-term care policy are deductible up to a certain amount as an itemized medical expense. The maximum deduction is based on your age and the amounts that can be claimed on Schedule A are adjusted for inflation.

Those deducible policy payment amounts for the 2018 and 2017 tax years are:

DING, DING, DING! INFO IN THIS PARAGRAPH HAS CHANGED! SEE UPDATE BELOW.
Remember, since Jan. 1 of this year, every taxpayer regardless of age must have itemized medical expenses that are more than 10 percent of adjusted gross income before they count on Schedule A.

UPDATE, Dec. 22, 2017: On this day, tax code changes in the Tax Cuts and Jobs Act (TCJA) were signed into law. Most of the provisions affecting individual filers will apply in tax years 2018 through 2025; they expire then unless a new Congress extends or makes them permanent.

One major tax break, however, was made retroactive. It made it easier to claim the itemized medical deduction.

Under the new tax law, the 10 percent of AGI threshold returns to the prior the 7.5 percent level for the 2017 and 2018 tax years. Yes, retroactive to the full 2017 tax year. In 2019, the 10 percent threshold returns.

Obamacare tax penalty
By now, folks know that if they don't have minimal essential health care coverage for the whole year, they will face a penalty that is collected when they file their tax returns.

Beginning with the 2017 tax year, that amount began being indexed for inflation. However, low inflation meant that the 2017 penalty amount stayed at $695. It will remain in 2018 at that level, again because there's not much inflation.

UPDATE, Dec 22, 2017: The TCJA, however, effectively eliminates this tax penalty in 2019. That year the new tax law ends the requirement, known as the individual mandate, on people who don't purchase ACA-acceptable health insurance policies. With no legislatively-demanded need to buy coverage, there's no need for the tax penalty.

I hope these medical tax provisions and, in some instances, their inflation adjustments help you and your tax situation feel a bit better.