General Medical Bills
FSA - Medical Expenses Tax Deduction
Medical expense tax deductions often can generate greater tax savings through a flexible spending account (FSA), than when deducting these expenses on IRS form 1040. A healthcare flexible spending accounts provides first dollar tax savings, while your medical expense deductions will be limited to the amounts over 7.5% of your adjusted gross income when using form 1040. Beginning in 2014 that threshold climbs to 10%.
Planning is the key to unlocking these savings. An FSA is best for predictable expenses: those medical expense deductions you are confident you will incur during the next plan year. The FSA use it or lose it rules makes planning vital.
It pays to understand how your health insurance policy works, and estimate what your left over medical bills will be at the end of your plan year. You should become familiar with medical expense terms such as:
IRS Medical Deductions: Deductibles, Copays, Coinsurance
A Medical Insurance deductible comes in many flavors, and it is important to understand which variety your deductible plan contains. Your health insurance plan may have an individual deductible, family deductible, or an embedded deductible. With an embedded deductible an insured only needs to satisfy the individual deductible, rather than the family deductible, before moving into co-insurance. Insurance co payments are made each time you seek medical treatment, or purchase prescription drugs.
Co payments are considered deductible medical expenses. They are often expressed as a flat amount each time you vist the doctor, pick up prescription medications, go to the dentist, etc. Co payments are often higher for out of network providers, emergency room visits, and hospital stays.
Coinsurance indicates how an insurer and an insured will share the costs of a bill that exceeds the insurance policy's deductible up to the policy's maximum out of pocket (MOOP). Once the insured's out-of-pocket expenses equal the MOOP, your health insurer will assume responsibility for 100% of any additional usual , customary, and reasonable costs.
Income Tax Medical Deductions - Usual and Customary Fees
When your health insurer issues your Explanation of Benefits statement, you will often see three intriguing figures:
* Providers Charges
* Allowed Amount
* Patient Responsibility
Ever notice the large difference between the first two figures? When you use an in-network doctor, patient responsibility is based off the allowed amount, and you are sheltered from paying that very large top figure.
The allowed amount is also known as usual, customary, and reasonable charges - figures set by the insurers, not the doctors. Out of network doctors are free to charge whatever the market will bear. When going out of network all bets are off. You may be responsible for all of that very large difference.
For most parents it does not make sense to contribute to an FSA for these types of charges unless someone in the family has a chronic medical condition that requires a provider with highly specialized expertise. Most day to day conditions don't require this type of care and added expense. A person with a chronic condition may be able to project expenses accurately, and have a high degree of confidence the charges will follow an established historical pattern. The use it or lose it rule means only predictable expenses should be contributed. Most frequently these types of charges are unexpected.
Eligible Medical Expenses Deductions