Tax deductions for your child born in the US.

by Mounica Kota | Oct 1, 2020 | Tax Deduction, tax deductions, tax filing, Tax Payers, taxes, US Government

Tax deductions for your child born in the US.

When the deadline for the tax return filing approaches, you should keep your details ready for review so that you do not miss any necessary detail. If you have a kid, then it is feasible that you can obtain some good tax benefits.

Dependency Requirements.

If you are going to claim your child as a dependent, then there are certain dependency requirements which your child must meet.

Your first step is applying for the Social Security Number of your baby. It will take nearly two weeks for your Social Security Number to arrive.
Another criterion is that your child should have been living with you for a period of more than half of the year. The time which your newborn child has spent in the hospital would not be taken into consideration here.

Changes in your tax filing status.

In case you were single and now after having a baby you are supporting your household, your tax filing status would change to “Head of the Household”.
By this tax filing status, you would be able to obtain a much larger standard deduction and even more favorable tax brackets.
So, you can save more on your taxes after being the Head of Household than you were saving while you were Single.
However, when married and having a child your filing status would not change.

Child Tax Credit.

This is considered to be one of the best tax breaks for the parents. You can claim Child Tax Credit up to $1000 for each qualifying child.

Some criteria must be met for your child to be the qualifying child.

Relationship – If you are going to claim this credit, then your biological children, foster children, adopted kids, step-children are eligible. Moreover, some of your other family members can also qualify.
Age – Your children must be of the age of either 16 years or younger than that to avail of this credit.
Dependent – You will have to claim your child as your dependent on the federal taxes.
Support – Your child should not have been provided half of the support.
Resident – Your child should have stayed with you for nearly half of the year or more.
Citizenship – Your child can qualify if he is a US citizen, US resident alien, or a US National.

Claiming the tax breaks for medical expenses and child care.

Medical expenses related to the birth of your child and child care are deductible.
These expenses are deductible only when they are exceeding 10% of your AGI (Adjusted Gross Income).
To qualify these expenses for deductions, these expenses must be itemized.
If you are a working parent, then you are eligible to claim credit for Qualified Child Care Expenses.
You can also claim the Child and Dependent Care Credit if you have paid some worker or Daycare center for taking care of your child while you were working.
To qualify for this credit, you should be able to identify the individual who has given support or taken care of your child. You and your spouse should have earned income to avail of this credit if you are filing the returns jointly. Moreover, the expenses paid for child care should not be given to your spouse or any other dependent on your tax returns.
This credit is based on your income and can exceed up to 35% of the child care expenses which qualify for a credit. This can be up to maximum expenses of $3000 for one child and $6000 for more children.
However, your Child and Dependent Care might get reduced if your employer is providing you with dependent care benefits that are tax-free.

Some additional tax breaks.

There are some other tax breaks which parents can enjoy such as:-

You can qualify for obtaining the Earned Income Tax Credit.
Any gifts i.e. in the form of money or property would be free of tax for you and your kid if received from grandparents and other relatives.
You can also be eligible to participate in QTP i.e. Qualified Tuition Program which is being offered by your State. Even though there is no immediate break for the taxes, the earnings in the account would be tax exempted. You could also obtain state deduction or credit for the contributions made.

Conclusion.

So, these factors would help you to understand the different facets related to the tax deductions associated with your child born in the US.

How to track the status of your tax refunds amidst pandemic?

by Mounica Kota | Jun 22, 2020 | Amended Tax Return, COVID - 19, Tax Payers, Where's My Refund

How to track the status of your tax refunds amidst pandemic?

The pandemic COVID-19 has adversely affected the lives and livelihoods of millions of Americans. With huge unemployment and economic crisis throughout the country, many Americans are looking forward to their Federal Tax refunds as a source of obtaining some money. The inquisitiveness among the taxpayers about “Where is my tax refund” is quite natural in such distressful times.

In general, the tax refund processing time is different for the different methods by which the tax refund has been filed.

For those taxpayers who have filed their tax returns electronically with direct deposit, the tax returns are processed within 21 days of acceptance of the e-filing by the IRS.
For those taxpayers who have filed their tax returns through paper, can expect their tax returns to be processed within 6weeks to 8 weeks of receipt of the return by the IRS.

How can the status of tax return be checked?

The IRS tool “Where’s My Refund?” can be used by taxpayers to access the status of their tax returns. To login into this IRS tool, there would be the need for three major pieces of information

Social Security Number or Taxpayer Identification Number
Filing Status of the taxpayer
The exact refund amount which the taxpayer would obtain

Moreover, taxpayers can access their tax return status from their mobile phones by using the app IRS2Go. This app can be downloaded for free on Google Play, Amazon, etc. and can be used to check tax refund status, make a tax payment, or obtain any free tax assistance if needed.

When can taxpayers start checking their refund status?

Taxpayers can start checking the status of their tax returns within 24 hours after their tax return which has been filed electronically is received by the IRS.

In case the taxpayer had filed tax returns by paper medium, then his status would take around 4 weeks to reflect in the IRS system. So, the taxpayer should wait for 4 weeks before checking the status of his tax refund.

Information available on “Where’s My Refund” tool

On the IRS tool “Where’s My Refund”, once the details are entered by the taxpayer, the screen would show up any of these three statuses.

a. Return Received

This would mean that the tax return has been received by the IRS and is being processed. The taxpayer needs to wait for at least 21 days within which he would be receiving his tax returns.

b.Return Approved

When the tax return status says “Return Approved” it means that the return request has been processed by the IRS and has been approved as well. This status is usually seen after three weeks of the “Return Received” status.

The taxpayers can even see an estimated date by which their refund money would be deposited into their specified bank account. There can be instances in which the taxpayers do not receive their money on the estimated date; the IRS suggests the taxpayers facing such issues to first contact their bank to ensure that there are no problems associated with the account.

c.Refund Sent

When the status says “Refund sent” it means that the IRS has sent your tax refund to your bank account by direct deposit or has sent your check via mail. The date on which the return payment was sent must be mentioned in this tool.

The taxpayers should keep in mind that even if the refund has been sent by the IRS, your bank would take at least 1-5 business days to deposit the money into your account. Also, if the return has been filed by paper means then the check would reach the taxpayer within several weeks via mail.

In case, the taxpayer owed some money to the IRS because of tax due, Federal Student Loan, or any other cause; then that amount would be reduced from the refund by the IRS. The IRS would inform you about any such deductions made from your refund on this webpage.

Status of Amended Tax Return

In case, amended returns have been filed by a taxpayer they would take up to around three weeks to reflect in the IRS system. Moreover, it would take 16 weeks or more for the processing of Amended tax returns.

Taxpayers can easily track the status of their Amended Tax return by the tool “Where’s My Amended Return” tool. There are three statuses which can be seen for Amended Tax Return in this tool i.e.

Received – This means the taxpayer’s amended tax return has been received and is being processed.
Adjusted – The status Adjusted means the IRS made adjustments into the account of the taxpayer.
Completed – This means the tax refund has been processed by the IRS and all necessary information related to this has been mailed to the taxpayer.

References

Top #10 most important things to know about the Economic Impact Payment Information Center

by Mounica Kota | May 27, 2020 | 1040-NR, 1040-SS, AGI, COVID - 19, Economic Impact Payment, federal government, Form 1040, Tax Payers

Top #10 most important things to know about the Economic Impact Payment Information Center

Under the provisions of the CARES (Coronavirus Aid, Relief and Economic Security) Act of the Federal Government, the citizens in the US have been receiving their Economic Impact Payments (EIP). The Economic Impact Payment which is being received by the Americans is calculated automatically by the IRS.

However, there are many Americans, who have several queries related to the Economic Impact Payments such as their eligibility, amount of payments, by when to expect the EIP, etc. The answers to these queries related to the Economic Impact Payments can be obtained by the common people at the Economic Impact Payment Information Center.

Some of the major things which Americans must know about the EIP Information Center can be listed below.

Eligibility for Economic Impact payment
Request for EIP
Calculation of EIP
Receipt of EIP
Non-Filer Tool
Social Security
Railroad retirement
Recipients of the Department of Veteran Affairs benefit
Additional Information
Return of EIP

Americans Must Know About The EIP Information Center

a.Eligibility for Economic Impact Payment

1.US citizens and US resident aliens who are filing tax returns as individuals or heads of households will be eligible for receiving EIP of $1200 whereas those who are married and are filing returns jointly would receive an EIP of $2400.

2. To receive EIP the taxpayers must not be the dependent of another taxpayer, should be having a valid Social Security Number and their AGI (Adjusted Gross Income) must be up to the given limits

For single individuals or married couples but filing tax returns jointly, the AGI should be up to $75000.
For those taxpayers who are filing tax returns as head of household filers, the AGI should be up to $112,500.
For taxpayers who are married and are filing their tax returns jointly, the AGI must be up to $150,000.

3. In case, an individual does not have a valid Social Security Number, is a non-resident alien or has filed Form 1040-NR, Form 1040NR-EZ, Form 1040-PR or Form 1040-SS for the year 2019 will not be eligible to obtain the EIP.

b.Request for EIP

If an individual has already filed the tax returns for 2018 or 2019, then there is nothing more to be done for receiving the EIP.
The IRS would use the information of the 2019 tax returns for calculation of the EIP or would use the information of 2018 in case of non-filing of the 2019 returns.
Taxpayers who have not filed returns for 2019 or 2018 can visit the IRS website and input their payment information in the link provided for Non-filers.

c.Calculation of EIP

Individuals who are eligible for receiving EIP and are filing tax returns with a single status would receive $1200 as the EIP.
If two individuals are filing their tax returns jointly, they are eligible to obtain an EIP of $2400.
The eligible individuals would receive an additional $500 for each qualifying child who has been claimed during the filing of tax returns.

d.Receipt of EIP

If an individual has received his tax refund for the year 2019 or the year 2018 in case of non-filing in 2019 by the method of Direct Deposit, then the IRS would use the latest information ad send your EIP by Direct Deposit.
Moreover, in case of non-receipt of EIP through Direct Deposit the IRS would send the EIP to the mailing address present in the file of the IRS.

e.Non-filer Tool

The Non-Filer: Enter Payment Info Here tool should be used for receiving EIP by those eligible individuals who have not filed tax returns for 2019 or 2018 and do not receive Social Security Retirement, Supplemental Security Income (SSI) or Survivor Benefits, Veteran benefits or any other benefits related to Railroad retirement.
If you have filed your tax returns or you receive federal benefits, then the need for using the Non-filer tool is ruled out.

f.Social Security

The Social Security recipients who might not have filed tax returns for 2019 or 2018 but receive Form SSA-1099 will receive their EIP by the same method as that of the receipt of the Social Security Benefit.

g.Railroad Retirement

The recipients of Rail Road Retirement who might not have filed tax returns for 2019 or 2018 but receive the benefits by RRB-1099 will receive their EIP by the same method as that of the receipt of the Rail Road Retirement Benefit.

h.Recipients of the Department of Veteran Affairs benefit

The recipients of the Department of Veteran Affairs Benefit who might not have filed tax returns for 2019 or 2018 but receive Form SSA-1099 or RRB-1099 will receive their EIP by the same method as that of the receipt of the benefit.

i.Additional Information

Taxpayers need to be cautious about scam artists who would try to use the EIP as a strategy for performing other scams related to stealing. Taxpayers must remember that information about EIP can be obtained only by visiting the official IRS webpage and not by any calls, text, or emails.

j.Return of EIP

For the return of EIP which was in the form of Direct Deposit, check, or money order; money order or personal check must be immediately sent to the IRS with information related to the SSN.
If the payment was received in the form of a paper check, then it can be sent back to the appropriate section of the IRS by writing “Void” on the back of the check.

Hence, taxpayers can avoid calling up IRS for queries related to the EIP and rather visit the Economic Impact Payment Information center for resolving their queries.

References

Key Take-away from the IRS’ announcement on “cross-border tax guidance related to travel disruptions arising from the COVID-19 emergency”

by Mounica Kota | May 21, 2020 | COVID - 19, COVID - 19 pandemic, IRS, Tax benefits, Tax guidance, Tax Payers, taxes, US Government

Key Take-away from the IRS’ announcement on “cross-border tax guidance related to travel disruptions arising from the COVID-19 emergency”

Due to huge adverse impacts being created by the outbreak of the pandemic COVID-19, social distancing and restrictions on the travel of people residing in the US have been imposed by the US Government. These restrictions imposed on the travel of the people residing in the US are sure to raise queries on the taxation policies and guidelines.

The IRS and the Treasury Department of the US have together issued tax guidelines which would help provide some relief to those people/businesses which have been impacted by these travel restrictions imposed due to COVID-19.

The major highlights of this tax guidance can be listed below.

Revenue Procedure 2020-20
Revenue Procedure 2020-27
An FAQ

The Highlights Of This Tax Guidance

1.Revenue Procedure 2020-20

The Revenue Procedure 2020-20 provides the guidance that under specific circumstances up to a period of 60 consecutive calendar days of presence in the US due to travel disruptions caused because of COVID-19 would not be counted for determination of the US Tax Residency and for other purposes such as qualification for tax treaty benefits for income obtained from the personal services that have been performed in the US.

a.The pandemic COVID-19 has affected the travel plans of many foreign travelers who had planned to leave the US. Even though foreign travelers who test negative for COVID-19 are not being able to leave the US due to cancelation of flights, border closures, and other disruptions.

b.An alien individual would be considered as a US resident for a year under the substantial presence test in the calendar year if

The individual has been present in the US on at least 31 days during the tested calendar year.
The sum of the number of days of presence in the tested calendar year plus one-third of the number of days of presence in the previous calendar year plus one-sixth of the number of days of presence in the second preceding calendar year equal to 103 days or more.

c.Medical condition exception means an alien individual would not be considered as present in the US on those days when he intended to leave the US but was not able to do so due to serious medical condition which arose when the person was in the US.

d.Those individuals who are claiming the Medical Condition Exception need to file the Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition for filing Form 1040-NR. However, under certain circumstances, the need for timely file Form 8843 might be not taken into consideration.

e.The COVID-19 emergency would be considered as a Medical Condition Exception while determining his eligibility for treaty benefits and revenue procedures. For revenue procedure, an individual would be considered to have intended to leave the country unless he has applied for becoming a resident of the US. Also, for obtaining treaty benefits an individual would be presumed to be unable to leave the country during the period of COVID-19.

2.Revenue Procedure 2020-27

The IRS and the Department of Treasury have provided a waiver of the time requirements for revenue procedure and eligibility for treaty benefits. This Revenue procedure provides the qualification for being excluded from gross income under the IRC Section 911 and would not be impacted because of the days spent away from a foreign nation due to COVID-19.

a.A qualified individual can elect to exclude from the gross income of the individual’s foreign earned income and the housing cost amount.

b.The IRS and the Treasury Department have determined that the COVID-19 is an emergency. For IRC Section 911, an individual who had left China on/ after 1st December 2019, or any other foreign nation on/after 1st February 2020, but on/ before 15th July 2020, would be considered as a qualified individual concerning the period during which he was present in, or was a bona fide resident of, that foreign nation if the individual can establish an expectation that he would have met the requirements of the IRC Section 911 for COVID-19 emergency.

c.To qualify for relief for the revenue procedure, an individual must have been physically present, in the foreign nation on/ before the applicable date specified for this revenue procedure. An individual who was physically present or in China after 1st December 2019 or another foreign nation after 1st February 2020 would not be eligible to use this revenue procedure.

d.Individuals trying to qualify for the section 911 foreign earned income exclusion as they have been expected to be present in a foreign country for 330 days for the outbreak of COVID-19 and have met the other 4 requirements for qualification may use any 12 months to meet the qualified individual requirement.

3.FAQ

FAQ specifies that specific business activities which are conducted by foreign corporations or by a non-resident alien will not be considered in the 60 consecutive calendar days for determination if the individual or the business is engaged in some US business or has a permanent establishment in the US only if those business activities would not have been conducted in the US due to the travel disruptions caused due to COVID-19.

Hence, these tax guidelines framed by the IRS are also being continuously monitored by the IRS and the Treasury Department. Taxpayers can visit the IRS website and obtain further information related to this.

References

State and Local Tax relief laws for COVID-19

by Mounica Kota | Apr 11, 2020 | COVID - 19, federal government, global income tax, local tax relief laws, state tax relief laws, Tax credits, tax deadline, Tax Extension, tax filing, Tax Payers, taxes, US Government

State and Local Tax relief laws for COVID-19

The novel coronavirus (COVID-19) is spreading rapidly with a huge toll on the lives of common people and the global economy as well. In the US, the number of people being affected by the COVID-19 is on an increase and has reached around 4 lakhs now. The number of people who have died due to COVID-19 in the US is approximately around 11,000. Similarly, many people have even lost their livelihoods due to the closing or the downfall of several businesses.

However, Tax relief laws the Federal Government has been extremely considerate towards the sufferings of the common people and has taken several initiatives for providing some relief to them. The income tax payment and return filing deadline for the taxes due on 15th April 2020 has been postponed to 15th July 2020 by the IRS. Also, several new laws have been implemented by the Federal Government for the support of individuals, small and medium scale businesses even. The Coronavirus Aid, Relief and Economic Security Act (CARES), Families First Coronavirus Response Act, Stimulus Package, etc. are some of the major initiatives taken by the Government for providing support and assistance to people.

Tax relief laws by State Government

In the US, the tax rules and laws associated with the Federal Government and the State Government are different from each other. In this distressful period, the State Government of different states of the country has announced various changes and new rules related to the tax laws.

Let us talk about some of the major tax relief laws imposed by the State Government in the different states to deal with the economic disruption caused by COVID-19.

Alabama

In Alabama, the Revenue Department has announced on provisions for tax relief to small businesses that would not be able to pay their Sales tax for February, March, and April. Those small retail businesses whose monthly sales in the previous year have been $62500 or less on average can have the liberty to file their sales tax return for February, March, and April without paying the State Sales tax. There will be a waiver of late tax payment penalties for these small retail businesses through 1st June 2020.
The deadline for motor vehicle registration and vehicle property tax payment for March 2020 has been extended through 15th April 2020. Moreover, tax relief would be available for State lodgings tax account holders who are unable to make their payment for February-April 2020.
The due date for payment and filing returns for 2019 Income tax and 2020 estimated Income tax which were due on 15th April 2020 has been extended to 15th July 2020.

California

The Income Tax deadline for return filing, payment for 2019 and 2020 estimated tax payments Quarter 1 and Quarter 2 has been extended to 15th July 2020. This is also applicable for 2020 LLC taxes, fees, and 2020 non-wage withholding payments.
The Californian Employment Development Department (EDD) has declared that the employers in the State who have been impacted by COVID-19 can request a delay of up to 60 days in filing their State payroll reports or in the deposit of their payroll taxes without the payment of any penalty. The employers must provide a written request for this extension within 60 days of the original tax filing/payment due date.
Moreover, there has been an announcement on the deferral of business taxes for supporting small businesses that have been affected by the COVIS-19.

Connecticut

The Department of Revenue Services in Connecticut has extended the deadlines for filing the annual tax returns due on or after 15th March 2020 and before 1st June 2020 to 15th June 2020.
Also, the tax payments which are associated with these tax returns have been extended to the due date available in June.
The personal income tax return filing deadline has been extended to 15th July 2020 and this extension is also applicable for estimated tax payments of 2020 Quarter 1 and Quarter 2.

Columbia

For income tax returns, the deadline for tax payment and return filing which was due on 15th April 2020 has been extended to 15th July 2020.
In the District of Columbia, penalties/interest will be waived for the failure of sales tax payment for a period that ends on 29th February 2020 or 31st March 2020 if all the taxes are paid completely on or before 20th July 2020. This waiver does not apply to hotels or motels which can defer property tax under another emergency legislation.
This legislation states that hotels/motels can avail penalties waiver for the delay in payment of the property tax’s first installment of 2020 if the installment is paid by 20th June 2020.

Texas

In Texas, the Comptroller has declared that the sales tax collected in March 2020 would be remitted and would be available for emergency health care and other emergency operations for the people.
The Texan Comptroller has also insisted on the businesses in the State to make use of short term payment agreements for meeting the deadline of March 2020.

Massachusetts

The Department of Revenue in Massachusetts has implemented an emergency regulation amendment. According to this amendment, the sales and use tax return filing and payment which are due for the period of 20th March 2020 to 31st May 2020 will remain suspended. These tax return filing and tax payments would be now due for 20th June 2020.
Marijuana retailers, marketplace facilitators or motorcycle vendors are not included within this amendment. Any penalties or interest would be waived but the accumulation of statutory interest will continue.

Virginia

In Virginia, the Department of Taxation has announced that all the income tax payments which are due from 1st April 2020 to 1st June 2020 can be paid at the Department anytime on or before 1st June 2020. If all the payments are received by 1st June 2020, then the Department would waive all penalties for late payment otherwise penalties would start accumulating from the original payment due date.
However, interest would also keep accruing from the original due date of payment. Some of the taxes which are eligible for this extension and waiver are individual, fiduciary and corporate income taxes and any estimated income tax payments in this period. The State provides an automatic filing deadline extension for all the taxpayers for six months. Also, the Department of Taxation would consider requests for sales tax dealers who would request an extension in the sales tax payment and return filing which was due on 20th March 2020 and would extend it till 20th April 2020.

Montana

The Montana Revenue Department would assess the situation of taxpayers on a case-by-case basis and might permit the deferral of tax payments for up to one month at an instance.
The taxpayers must contact the Tax Collection Bureau by email, phone or mail at least one week before the actual due date of payment for making a deferral request.
The 2020 estimated tax payments for the first quarter have been extended to 15th July 2020 and the second quarter payment is also due on 15th July 2020.

Conclusion

Hence, along with the Federal Government, these are some of the tax relief laws/rules implemented by the different states. Taxpayers can communicate with their respective State tax agencies for complete details on the amendments made in their respective tax laws for COVID-19. These rules and amendments in State tax laws would act as a support for the distressed individual taxpayers or businesses in coping up with the economic disruptions.

References

https://tax.thomsonreuters.com/news/tax-relief-offered-by-states-and-localities-in-response-to-covid-19/?utm_campaign=T_CPE_NSL_9017597_covid19news_20200406_PR_EM1&utm_medium=email&utm_source=Eloqua&site_id=82769734&cid=9017596&chl=em&sfdccampaignid=7014Q000002SW4xQAG&elqTrackId=8432E59EA486AE4E4F693C86C8DF092E&elq=1fca5b09cc9e4a48adaa952eec158059&elqaid=22686&elqat=1&elqCampaignId=16486

https://www2.deloitte.com/us/en/pages/tax/articles/covid-19-state-and-local-tax-due-date-relief-developments.html

How high deductible health plans would help in providing cover against COVID-19 expenses?

by Mounica Kota | Mar 31, 2020 | COVID - 19, federal government, HDHP, HSA, Relief notice 2020-15, tax deadline, Tax Extension, Tax Payers, taxes, US Government

How high deductible health plans would help

in providing cover against COVID-19 expenses?

Lately, people across the world have been struggling hard to combat the dreadful effects of the pandemic COVID-19. The number of deaths occurring due to coronavirus is on an increase and is also leading to an increase in the fright of the common people. Any symptoms of the COVID-19 and there have to be several tests, quarantining without any idea about what the future holds.Amidst all this chaos, the US Government has taken some very necessary steps to lessen the stress among common people. Extension in the tax return filing and tax payment deadlines, extension in the deadline for making contributions to IRA and HSA, Tax stimulus package, Families First Coronavirus Response Act, etc. are some of the major changes implemented by the US Government to bring some relief to the impacted taxpayers. Another major initiative taken by the US Government for helping the common people is the implementation of testing /treatment of COVID-19 by HDHP with no deductible or sharing of the cost.

What is a High Deductible Health Plan (HDHP)?

What is a High Deductible Health Plan (HDHP)?

A high deductible health plan (HDHP) is a type of health insurance plan which has a lower premium in a month and a higher deductible. HDHPs are more affordable by common people in terms of their monthly premiums. Since the name suggests, high deductible health plan; it implies that the deductible for the health plan is high than that of a traditional healthcare plan. However, by the time the policy holder reaches the annual deductible, he would be covered 100% for the rest part of the calendar year.

A high deductible health plan is suitable for those policyholders who are quite healthy and rarely visit the doctor. In these types of cases, HDHP is an excellent option to cut expenses and it is a better option rather than going without health insurance. However, it should be kept in mind that the policyholder must set aside a considerable amount of liquid savings which would help in covering the deductible and the out-of-pocket expenses.

How does a High Deductible Health Plan work?

How does a High Deductible Health Plan work?

The minimum deductible in an HDHP is $1350 for an individual whereas it is around $2700 for a family. The out-of-pocket expenses for an HDHP are limited to $6650 for an individual and $13300 for a family. To offset the cost of the HDHP it is necessary to open a Health Savings Account (HSA). The HSA offers a tax-advantaged method by which healthcare costs can be saved.

There is a limit on the annual contribution which can be made to the HSA; it helps in rolling over the balance from one year to another. It is ideal for a policyholder to contribute the amount of deductible of HDHP into the HSA so that there are enough funds to cover the medical expenses.

HDHPs and expenses associated with COVID-19

HDHPs and expenses associated with COVID-19

The US Government issued a notice i.e. Notice 2020-15 which states that a health plan which satisfies the requirements to be a high deductible health plan (HDHP) shall not fail to be an HDHP if it provides health benefits related to the testing of COVID-19 and its treatment. This testing and treatment of COVID-19 by the HDHP would be available without a deductible or with a deductible which is below the minimum deductible. So, the evident implication from this notice is that an individual who is covered under the HDHP will still be an eligible individual who might make tax-favored contributions to an HSA.

The Notice 2020-15 also states that all the medical care services received and the materials purchased for the testing of COVID-19 which are provided by a health plan which is either without a deductible or with a deductible that is below the minimum deductible needed for a health plan to be HDHP should be disregarded.

The relief provided by the Notice 2020-15

The relief provided by the Notice 2020-15

This notice does not modify any of the requirements or conditions which are needed for a health plan to be an HDHP other than the relief related to the testing/treatment of COVID-19. However, vaccinations would continue to be considered as preventive care materials for determining if a health plan is an HDHP or not.

So, if a policyholder is availing a health plan with no deductible or less deductible than the minimum annual deductible needed to be an HDHP for testing/treatment of COVID-19 he would still make contributions to the HSA which can help in tax relaxation.

Conclusion

Hence, this effort by the US Government for providing some relief to the affected citizens is commendable and would be helpful for the citizens in these times of distress.

References