Summary of the GOP House Tax Bill provisions that impact HSAs
Summary of the GOP House Tax Bill Provisions that Impact HSAs:
Archer MSAs are subsumed into HSAs, in a highly technical, HSA simplification fix.
Changes the annual inflation adjustment factor for HSA contributions from “normal CPI (consumer price index)” to the “chained CPI.”
By eliminating Section 213 and the medical expense deduction HSAs will be even more favorable because HSAs will now be the best (only) opportunity for to get any tax relief for out-of-pocket expenses.
By eliminating Section 213 (d) HSA qualified medical expenses will be defined by Section 105 (f).
Ways and Means Section by Section can be found here and the relevant HSA provisions are quoted below:
Sec. 1311. Termination of deduction and exclusions for contributions to medical savings accounts.
Current law: Under current law, an individual may claim an above-the-line deduction for contributions to an Archer Medical Savings Account (MSA) and exclude from income employer contributions to an MSA. In general, Archer MSAs may be set up by an individual working for a small employer and who participates in the employer’s high-deductible health plan. The total amount of monthly contributions to an Archer MSA may not exceed one-twelfth of 65 percent of the annual deductible for an individual with a self-only plan and one-twelfth of 75 percent of the annual deductible for an individual with family coverage. Distributions from the accounts used to pay qualified medical expenses are not taxable. Archer MSAs may not be established after 2005. Archer MSA balances may be rolled over on a tax-free basis to another Archer MSA or to a Health Savings Account (HSA).
Provision: Under the provision, no deduction would be allowed for contributions to an Archer MSA, and employer contributions to an Archer MSA would not be excluded from income. Existing Archer MSA balances, however, could continue to be rolled over on a tax-free basis to an HSA. The provision would be effective for tax years beginning after 2017.
• There is no manner in which Archer MSAs are more favorable than HSAs; thus, no taxpayer would see his ability to save for future health costs restricted.
• As a result, the provision merely simplifies the Code by consolidating two similar tax-favored accounts into a single account with more taxpayer-friendly rules (i.e., HSAs).
Also of interest:
Sec. 1308. Repeal of medical expense deduction.
Current law: Under current law, a taxpayer may claim an itemized deduction for out-of-pocket medical expenses of the taxpayer, a spouse, or a dependent. This deduction is allowed only to the extent the expenses exceed ten percent of the taxpayer’s adjusted gross income.
Provision: Under the provision, the itemized deduction for medical expenses would be repealed. The provision would be effective for tax years beginning after 2017.