Unit 22: Taxation Of Health Insurance Flashcards
How are medical expense policies taxed for self-employed persons?
•can deduct premiums if have a net profit from business & not covered by a group policy
•benefits NOT taxable
How are medical expense policies taxed for partnerships?
•premiums deductible for partnership
•premiums are income to partners
•benefits are taxable
What are the 3 types of business disability insurance plans?
- Buy-sell
- Key person
- Business overhead expense (BOE)
How are medical expense policies taxed for buy-sell insurance plans?
•premiums NOT deductible
•tax-free
How are medical expense policies taxed for key person insurance plans?
•premiums NOT deductible
•benefits tax-free
How are medical expense policies taxed for business overhead expense (BOE) plans?
•premiums deductible
•taxable
What are health savings accounts (HSAs) and how are they taxed?
•a tax-advantaged medical savings account available to taxpayers enrolled in a high-deductible health plan (HDHP)
•do NOT need IRS authorization to set one up—>can set one up with a bank, insurance company, or investment company which will act as a trustee (similar to an IRA)
•created to help employees & self-employer individuals pay for their medical care expenses on a tax advantaged basis
•contributions tax-deductible
•earnings grow tax-deferred
•distributions are tax-free when used to pay qualified medical expenses
•distributions subject to income tax if not used for qualified medical expenses
•20% penalty tax also applies unless the account beneficiary has died, becomes disabled, or is age 65 or older
How are individuals are eligible to establish an HSA?
•have no other comprehensive medical expense coverage, including Medicare (they can have a limited benefit plan, disability income, or LTC insurance)
•cannot be claimed as a dependent on another person’s tax return
•are enrolled in a high-deductible health plan (HDHP)
What are high deductible health plans (HDHPs)?
•health plan that offers lower premiums
•requires the insured to pay a high deductible when the plan is used
•amount of the deductible required changes yearly
What are health reimbursement accounts (HRAs)?
•established by the employer
•employer contributions are pretax
•high-deductible health plan (HDHP) is NOT required in order for the employer to establish the HRA
•employee can use money in the HRA to pay deductibles, coinsurance, & co-pays
•money rolls over from year to year
What are flexible spending arrangements (FSAs)?
•a “cafeteria plan benefit”
•employee authorizes employer to reduce employee’s salary
•employer puts the money into FSA account; pre tax contributions
•withdrawals by employee are NOT taxed
—>only certain approved benefits
•spend it or lose it
Which plan was created to help employees & self-employed individuals pay for their medical care expenses on a tax advantaged basis?
Health savings account
