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Wednesday, April 12, 2017

As more and more people learn about the benefits to an Idaho MSA and open accounts, the need for ongoing education becomes increasingly important.  This is exactly what we are here to accomplish, and is also the reason we wrote this blog post...to address the issue of over-contributions to your Idaho Medical Savings Account.  

Before we scare anyone with this, over-contributions certainly aren't the end of the world.  They can be both fixed and prevented (depending on circumstances I'll outline below), but they are definitely something you'll want to do your best to avoid.  

Now let's take a look at what it means to over-contribute, how this happens, what we can do to fix them, and what we can all do to prevent them from happening in the first place!

What Do You Mean...Over-Contribute?

Contributions to an Idaho MSA are capped annually, based on your tax filing status.  For single or individual tax filers, this annual limit is $10,000.  For joint tax filing households, this annual limit is $20,000.  So in a nutshell, putting more money into your Idaho MSA than you are allowed in a given tax year, is called an "over-contribution".

What's Wrong with Over-Contributing?

Any money you put into your Idaho MSA reduces your State taxable income, dollar-for-dollar.  That's great news, right?  That means you can save a significant amount of money simply by paying insurance premiums and medical expenses you have to pay anyway out of a different account (not your checking account, for example).  As a quick side note, if you're interested in seeing how much you can save with an Idaho MSA, check out our online savings calculator!

But back to what I was saying, the problem with over-contributing is that the State of Idaho will only let you place a certain amount of money into these accounts each year because they're not offering a free-for-all deduction party.  These accounts are designed to help Idahoans to afford the rising cost of health insurance premiums and medical costs, not to deduct groceries, vacations and vehicles.  Depressing, I know.

In addition, and what further complicates the matter, is that the money you place into the Idaho MSA earns tax-free interest on the State level.  This is another great benefit, but the State has a cap on this free money, based on the contribution maximums.

So the issue the Tax Commission has with over-contributions is really two-fold.  The first, is if you're obviously trying to deduct more money than you are entitled to.  That one is pretty obvious.  If you put anything over $10k or $20k on your taxes as an Idaho MSA deduction that's a first-class invitation to the audit party.  

But what if you don't try to deduct the full amount you put in that resulted in an over-contribution?  So if you put in $25k and only claimed $20k you're not trying to get a larger deduction that you're entitled to.  That doesn't hurt anyone and it's kind of a "no harm, no foul", right?  

Good attempt in theory, but this is where that tricky "interest earned" part comes into play to blow this strategy up, and subsequently brings us to the second problem the Tax Commission has with over-contributions: interest earned.

As we said above, the interest earned on your Idaho MSA contributions is tax-free on the Idaho level.  So if you've put more money than you're allowed to into an Idaho MSA, even if you don't claim the overage, you're still earning interest in an account based on money that shouldn't be in there, that therefore you are not entitled to.  So obviously, that's a no-go.

Does It Matter When I Over-Contribute?

Yes, it definitely matters not only when you over-contribute, but also how many times you over-contribute.  The timing and frequency will determine how difficult it's going to be to ultimately fix the issue.  Let's look at some examples to help illustrate this point.

Simple Over-Contribution:

Jim has deposited $20k in his Idaho MSA this year.  He files a joint tax return, so this amount is fine.  However, Jim makes a $5k deposit to his account in October, bringing his year-to-date contributions to $25k.  This is no longer fine.  Jim doesn't contribute any further that year, so when he goes to calculate his taxes he's going to need to make some adjustments to fix this, but it is not complicated to determine how he will fix this.  To see how to fix the simple over-contribution, see the section below.

Complicated Over-Contribution:

Jim has deposited $20k in his Idaho MSA this year.  He files a joint tax return, so this amount is fine.  However, Jim deposits $5k in June.  Then again in July, then again in August.  So now Jim's over-contributed 3 separate times resulting in $15k in overages.  This is obviously no longer fine, and Jim is going to need to make quite a few adjustments to fix this.  Due to the frequency in which he over-contributed, it will be a relatively complicated process to fix it.

Which brings me to our next topic, "What can be done to fix an over-contribution"?

What Can Be Done to Fix the Over-Contribution?

This answer can be broken down into two separate windows of time, based around the date in which you over-contributed:

  • Before 30 days has passed since you over-contributed
  • After 30 days has passed since you over-contributed

Before 30 Days Has Passed:

If you're in this camp, I have some great news!  All you need to do is simply contact our office and we can reverse the deposit.  It will be coded at the bank as a "deposit made in error", and it will not count towards your annual year-to-date amount.  As long as your year-to-date after the reversal is still under your allowed maximum for the year, problem solved.

After 30 Days Has Passed:

This is where things get complicated, because the option to simply reverse the contribution has been lost.  When you over-contributed, and how often you over-contributed will now come into play.

The entire goal of the exercise to follow, is calculating the interest earned on your over-contributed money that was not allowed.  

What you will need to do is go back and figure out when you first over-contributed to your account.  You will need to calculate the interest earned on your account from the date in which you over-contributed until December 31 of that tax year.  If you over-contributed more than once, you will need to calculate each and every time you did this, and it will be tiered.

So for example, if you over-contributed in June, again in August, and then again for a 3rd and final time in September, you calculate interest earned on the over-contributed funds from June-August.  Then you do it from August (including June and August's funds) to September.  Then you do it again (including June, August and September's funds) through the end of the year.

Once you have this number figured out, you will need to report it as income earned on your Idaho Supplemental Schedule Form 39R.  This is the same form you would normally use to claim your deduction.  In a case such as this where you over-contributed, you will need to be sure and report the full amount you contributed to your account, even if it is over the maximum allowed $20k.

Obviously, this can become a very difficult and time-consuming chore that you are going to have to do yourself, or pay your CPA's hourly rate to go back and figure it all out.  The frustrating thing about this is all of this is completely avoidable either by you monitoring your own account and being aware of the rules, or by utilizing our services to do this for you, automatically.  Which brings me to my last point.  This is avoidable!

What Can Be Done to Prevent Over-Contributions?

In short, being aware of how much you can contribute based on your own tax filing status and a little self-monitoring of your own money in your own accounts goes a long way.  But we completely understand this can be a complicated situation, and keeping track of rules and regulations for all these tax-deferred "alphabet soup" accounts can get a little confusing.  That is exactly what we're here for!

We track every single dollar that comes through our office before it hits an Idaho MSA.  We do this as a courtesy to all of our account holders and it is the least we can do to keep all of them in compliance.  "An ounce of prevention is worth a pound of cure."

We also ask a couple quick but very important questions on our Idaho MSA application:

-Do you or your spouse have a Health Savings Account (HSA)?

-Do you or your spouse have a Flexible Spending Account (FSA)?

They may seem innocuous, but the reason we ask is because even though you can certainly have an Idaho MSA with both of these Federally recognized healthcare accounts, the money you contribute towards them affects what you can contribute to an Idaho MSA.  It's a tricky scenario that many people aren't aware of, and we always try to stay ahead of the curve to the benefit of our account holders.

So whether you have an HSA, an FSA, or you are just simply nearing the annual max based on your tax filing status...we always double-check every dollar going into your Idaho MSA.  If there's a potential conflict, we'll call you (or email you) and clarify what you would like us to do with the money.  If it will in fact result in an over-contribution, we can deposit partial funds to max out the account and refund the rest, or simply refund the full amount back to you.

That's just a snapshot of some of the "behind the scenes" work we put into your account, and I can assure you that you won't find these services anywhere else in Idaho.

Questions or Comments?

If you've made it this far, we certainly appreciate you reading up on the "in's and out's" of Idaho MSA over-contributions.  We're quite passionate about the Idaho MSA, but we're even more passionate about our valued account holders!  

If you have any questions, comments or suggestions for future blog posts we're always happy to hear them.  There are so many nuances to these accounts and they are treated so many different ways by different individuals that there always seems to be another topic we can expand upon to help someone.  Feel free to contact our office and we'd love to hear from you.

As always, we appreciate your business and look forward to our next opportunity to serve you and your family's healthcare needs.  Have a great day!

Posted by idahomsa at 4/12/2017 2:07:00 PM
Wednesday, January 18, 2017

2016 Idaho Income Tax FormsWe've recently updated our website to reflect the new and updated Idaho tax forms you'll need to file your income tax returns with an Idaho Medical Savings Account.

The two main tax forms you'll need are:

If you're new to the Idaho MSA and aren't sure how to file, or if you're like me and need a quick refresher each year, check out our blog post we wrote that walks you through exactly how you file your income tax return.

We can't give tax advice, but we are more than happy to answer any questions you might have about how to file your return, as well as any questions you might have about the Idaho MSA in general.  Please feel free to contact our office (or have your CPA contact us) and we're happy to help you out!

Posted by idahomsa at 1/18/2017 11:08:00 AM
Wednesday, January 11, 2017

It's that time of year again, and as the Idaho MSA is quickly growing in popularity you may find yourself with one for the first time.  But how do you go about filing your taxes?

That's a fantastic question, and it's one we get frequently.  Although we are certainly not tax professionals, we do know a thing or two about how to report the Idaho MSA on the Idaho income tax forms.  Here's a quick instruction manual to help you report your Idaho MSA properly and get the deduction you deserve!  

Everybody who has an Idaho MSA is going to have to file the Idaho Tax Form 39R, the Idaho Supplemental Schedule.  Here's an image of Idaho Tax Form 39R, with some highlights we've made to help get our point across.

Idaho Tax Form 39R

As you can see in our highlights above, line 13 is the one that pertains to the Idaho Medical Savings Account.  If you have an Idaho MSA you'll need to fill in the 4 boxes that are asking for:

  • Total Annual Contributions
  • Interest Earned on the Account
  • Financial Institution that Holds Your Account
  • Account Number for your Idaho MSA

Line 13 then becomes part of your other deductions (if any), and that total will appear on line 23.  As the instructions say, take line 23 from this form and apply it to line 10 on your Idaho Individual Income Tax Return, Form 40.

That's it, you're done!  It's important to note here as we noted above, that we are not tax professionals and you should always consult an accountant or tax preparer to review your tax forms if you're not comfortable filing on your own.  This is just a basic guideline, but we think it will help most people looking to learn how to report their Idaho MSA contributions for deduction on their Idaho State Income Taxes.

As always if you have any questions, please don't hesitate to contact our office!  We appreciate your business and look forward to the opportunity to help you however we are able.

 

Posted by idahomsa at 1/11/2017 8:58:00 AM
Tuesday, December 13, 2016

Here we are, smack-dab in the middle of our nation's new annual healthcare tradition...Open Enrollment Season!  This is the tiny window every American has each year (outside of a "life-changing event") to either renew their existing health insurance policy (if it still exists), or jump ship to a different policy or insurance carrier altogether.

What many Idahoans are quickly discovering, is that the average health insurance premium increase for 2017 is 24%.  24%!!  So the exact same thing you had last year, whether you used it or not, has now increased in cost by almost a quarter.  Unless you qualify for an income-based Federal subsidy through the exchange, insurance premiums were already so high that most of us would consider them in the same breath as a mortgage payment.  Speaking of a mortage payment, imagine getting a letter from your lender that said, "Due to the new Federal Affordable Mortgage Act, your mortgage is now going up 24% this year".  Nobody would stand for that, you would think.  Yet somehow we are all being led to believe this new annual tradition of health insurance hikes is not only both acceptable and justified, it is the new norm we must live with (and budget for!).

As if that wasn't bad enough, those increases are compound and happen annually.  So your policy that was $800/month in 2014 saw an increase of 20%, making it $960 in 2015.  Then in 2016 it went up 27% from $960 to $1,220.  Thankfully you got a "reprieve" for 2017, where it only went up an average of 24% from $1,220 to a staggering $1,512 for the same thing you paid $800 for, less than 3 years ago.  That monthly payment has basically doubled.  Forget the paltry mortgage payment reference I made above.  We're talking more like a second vacation home in Maui.  And seriously, forget the mortgage payment.  If you have health insurance premiums like that you can probably forget paying the mortgage, because good luck affording one.

What Can Be Done?

Unfortunately, there's nothing any of us here can do about the health insurance rate hikes.  That is a complicated and politically-driven quagmire that will have to be worked out through Washington DC.  But what we as Idahoans can do, is take advantage of the incredible benefit we have been given by the Idaho State Legislature to help us pay these outrageous costs.  We can deduct them, with an Idaho Medical Savings Account!

For the uninitiated, an Idaho MSA is a simple bank account anyone who files an income tax return in Idaho can open.  Every dollar you put into the account reduces your taxable income dollar for dollar, and whatever you don't spend each year just rolls over!  At this point you may be wondering, "What can I spend the tax-free money on"?  Great question.  The short answer is eligible medical expenses, but the main idea here is that you can pay for many products and services you typically have to pay out-of-pocket, like:

  • Doctor Visits, Hospital Bills & Surgeries
  • Dental Costs, Eye Exams & Hearing Aids
  • Even Contacts, Eye Glasses & Supplies like Band-Aids!

But the biggest benefit, and the reason we wrote this blog post, is because you can pay your health insurance, Medicare, and/or Long-Term Care premiums out of this account!  That's right.  The biggest burden we all have is now tax-deductible on the Idaho State level, first-dollar for everyone.

What Does This Mean?

This means you now have the ability to make all of your health insurance costs for you and your family, including insurance premiums, tax-free.  You may be wondering exactly how that translates to you based on your healthcare needs, or your financial picture.  This is exactly why we created our Free Online Savings Calculator, so we could help make something intangible like tax saving into an instant visual for anybody.  

As you enter dollar figures into the calculator for monthly premiums and other healthcare expenses like medical bills, dental, vision, prescriptions etc. the calculator instanty shows you (in red) what you're spending annually.  It also shows you (in green) what you'll save on your taxes, simply by paying all these expenses from an Idaho MSA as opposed to a normal checking account!

This will allow you to see in real time what you're leaving on the table every year, simply by paying these expenses you're going to pay anyway, out of the wrong account.  Check out the calculator and seriously ask yourself, why would you NOT take advantage of this?

Luckily, You Have A Choice

Ultimately, this means that as an Idahoan, you are very lucky.  Idaho is only 1 of 3 states in the entire country that has a program like this for its residents.  It also means that you have a choice.  You can pay your monthly premiums and medical expenses out of a normal checking account and get absolutely nothing for doing it.  Or, you can pay those expenses out of an Idaho MSA, reduce your taxable income and save 7.5% (the Idaho income tax rate) on everything you have to pay anyway!

As I said before, we can't control the skyrocketing costs of healthcare.  But as an Idaohan, you absolutely can control how and where you pay those expenses.  We should be taking every action available to save money for ourselves and for our families, and being proactive and opening an Idaho MSA will both check that box, and make a huge difference.  So stop throwing your money away!  Reduce your taxable income, pay yourself first and open an Idaho Medical Savings Account today!

Posted by idahomsa at 12/13/2016 4:26:00 PM
Friday, September 02, 2016

Here's another useful "Idaho MSA 101" type of topic, and it's a question we get frequently.  "Who can use the funds in my Idaho MSA?" or put another way, "Who's healthcare expenses can I pay for out of my Idaho MSA?".  

Great question, and it's one we get a lot surrounding children, parents and spouses.  The good news is that the Idaho MSA's flexibility really shines here, and you can use the funds within it to pay for the healthcare needs of a lot of different people in your family in addition to yourself.  

Here's our full analysis:

Can I Pay for My Spouse?

Yes!  You can use the funds in your Idaho MSA tax-free to pay for eligible medical expenses for your spouse.  There are no restrictions or requirements outside of what expenses are considered eligible under the standard rules.

Can I Pay for My Kids?

Yes, to a certain extent.  As long as your children are either 21 years or younger, and/or full-time college students, you can pay for the healthcare expenses of your children tax-free.  

It is important to note here, that you do not have to claim your kids as dependents on your tax returns in order to pay for their medical expenses from your Idaho MSA.  We get typically get this question in relation to divorce, where one parent claims the child or children as dependents and the other cannot.  The Idaho MSA does not draw this line.

Can I Pay for My Parents?

No, unfortunately you cannot use the funds in your Idaho MSA to pay for the healthcare expenses of your parents.

Can I Pay for Friends/Neighbors/Co-Workers/Anybody Else?

No, unfortunately you cannot use the funds in your Idaho MSA to pay for the healthcare expenses of anyone other than yourself, your spouse and your children that fit the guidelines.

That should pretty much cover most demographics, but if we left anyone out please let us know and we'll add them in!  We hope you enjoyed this post and found it both helpful and informative.  As a reference, all of this information can be found in Idaho House Bill 595, which is the governing document from the State of Idaho relating to the Idaho Medical Savings Account rules/regulations.

Lastly, if you ever have any questions about the Idaho MSA as a current or future accountholder, please don't hesitate to ask and we will be glad to help you.  That's exactly what we're here for!

Posted by idahomsa at 9/2/2016 1:07:00 PM
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