Tax deductions & credits affected in 2019 by inflation
Sharing the wealth & avoiding tax on it thanks to estate, gift and kiddie tax inflation adjustments

Medical tax provisions affected in 2019 by inflation


Welcome to Part 5 of the ol' blog's 2019 series on tax inflation adjustments. 
Today we look at changes to some medical tax provisions.
You can find links to all 2019 inflation posts
in the 
series' first item: income tax brackets and rates.
Note: The 2019 figures apply to 2019 returns that are due in April 2020.
For comparison purposes, you'll also find 2018 amounts to be used
in filing this year's 2018 tax return due April 15, 2019.


SKB oral outpatient surgery 1107178_IMG_0136-cropped2
Why yes, I am milking this medical situation for all it's worth, both personally (the hubby is such a great nurse!) and for tax blogging purposes.

It's been a, shall we say, annoying last two years for me on the medical front. The natural aging process does that to most of us. Things break down, more often and sometimes in more serious ways than we'd like.

In trying to hang onto my perspective and sense of humor if not my youthful ability to recover quickly, I've focused on the positive. And that includes some ways the tax code can help cover some medical costs.

Many of the many medically-related tax laws also are adjusted each year for inflation.

Below is a look at how these cost-of-living changes in tax year 2019 will affect such things as flexible spending accounts (FSAs), health savings accounts (HSAs) and long-term care policy premiums.

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 Affordable Care Act, aka Obamacare, became law. That law also allows for the possibility that the FSA limit could increase depending on inflation.

For the 2019 tax year, you can put up to $2,700 in your FSA. That's $50 more than the $2,650 limit in 2018.

Health Savings Account (HSA): 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, though, is that you have to pay more to reach that 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 2019 inflation adjustments for HSAs earlier this year.

The table below shows the HSA contribution and maximum out-of-pocket limits for high-deductible medical coverage for the 2018 and 2019 tax years.

Contribution and Out-of-Pocket Limits
Health Savings Accounts (HSAs) & High-Deductible Health Plans (HDHPs)

 

2018

2019

 HSA contribution limit

Self-only: $3,450
Family: $6,900

Self-only: $3,500
Family: $7,000

 HSA catch-up contributions
 
(age 55 or older)


$1,000


$1,000

 HDHP minimum deductibles 

Self-only: $1,300
Family: $2,600

Self-only: $1,350
Family: $2,700

 HDHP maximum
 out-of-pocket amounts

Self-only: $6,650
Family: $13,300

Self-only: $6,750
Family: $13,500


Medical Savings Account (MSA):
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.

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 2019, 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 $2,350 (an increase of $50 from the $2,300 for tax year 2018), but not more than $3,500 (an increase of, again, $50 from this tax year). The maximum out-of-pocket expense for self-only coverage in 2019 will be $4,650, up $100 from the $4,550 cap in 2018.

For tax year 2019, participants with family coverage, the floor for the annual deductible is $4,650, up $100 from the revised $4,550 in 2018. However, the deductible cannot be more than $7,000, which is a jump from the $6,850 for this year.

And if you have family coverage, the out-of-pocket expense limit is $8,550, an increase of $150 from the out-of-pocket expense limit is $8,400 for tax year 2018.

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 2019 and 2018 tax years (note that in some cases, the inflation changes are minimal or not at all) are:

 Age by the end 
 of the tax year

2018

2019

 40 or younger

$420

$420

 41 to 50

$780

$790

 51 to 60 

$1,560

$1,580

 61 to 70 

$4,160

$4,220

 71 and older 

$5,200

$5,270


Obamacare tax penalty out: Long-time readers of the ol' blog know that in the past I've addressed the change in the penalty amount filers will face if they don't have, per the Affordable Care Act, minimal essential health care coverage .

This penalty, which since the 2017 tax year was indexed for inflation, typically has been collected when they file their tax returns.

For the 2018 tax year, the penalty is still in place and is $695.

The TCJA, however, effectively eliminates this tax penalty in 2019. Next 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. Hence, no 2019 inflation adjusted amount.

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

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