Latest news with #healthsavingsaccounts
Al Arabiya
8 hours ago
- Business
- Al Arabiya
How Senate Republicans Want to Change the Tax Breaks in Trump's Big Bill
House and Senate Republicans are taking slightly different approaches to the tax cuts they want to include in their massive tax and spending cuts bill. Republicans in the two chambers disagree on the size of a deduction for state and local taxes. They also disagree on issues such as allowing people to use their health savings accounts to help pay for their gym memberships and whether electric vehicle and hybrid owners should pay an annual fee. The House passed its version shortly before Memorial Day. Now the Senate is looking to pass its version. While the two bills are similar on the major tax provisions, how they work out their differences in the coming weeks will determine how quickly they can finalize a bill. President Donald Trump is pushing to have the legislation on his desk by July 4. Here's a look at some of the key differences between the two bills: Tax break for families: The child tax credit currently stands at $2,000 per child. The House bill temporarily boosts it to $2,500 for the 2025 through 2028 tax years –– roughly the length of President Donald Trump's second term. It also indexes the credit amount for inflation beginning in 2027. The Senate bill provides a smaller initial bump-up to $2,200, but the bump is permanent, with the credit amount indexed for inflation beginning next year. Trump campaign promises: Trump promised during the campaign that he would seek to end income taxes on tips, overtime, and Social Security benefits. He also said he would give car buyers a new tax break by allowing them to deduct the interest paid on auto loans. The House and Senate bills incorporate those promises with temporary deductions lasting from the 2025 through 2028 tax years, but with some differences. The House bill creates a deduction on tips for those working in jobs that have customarily received tips. The House also provides for a deduction for overtime that's equal to the amount of overtime a worker has earned. The Senate bill comes with more restrictions. The deduction for tips is limited to $25,000 per taxpayer, and the deduction for overtime is limited to $12,500 per taxpayer. The House and Senate bills both provide a deduction of up to $10,000 for interest paid on loans for vehicles made in the US. And on Social Security, the bills don't directly touch the program. Instead, they grant a larger tax deduction for Americans age 65 and older. The House sets the deduction at $4,000. The Senate sets it at $6,000. Both chambers include income limits over which the new deductions begin to phase out. More SALT: The caps on state and local tax deductions (known in Washington as the SALT cap) now stand at $10,000. The House bill, in a bid to win over Republicans from New York, California, and New Jersey, lifts the cap to $40,000 per household with incomes of less than $500,000. The credit phases down for households earning more than $500,000. The Senate bill keeps the cap at $10,000. That's a non-starter in the House, but Republicans in the two chambers will look to negotiate a final number in the coming weeks that both sides can accept. Medicaid providers: The House bill prohibits states from establishing new provider taxes or increasing existing taxes. These are taxes that Medicaid providers, such as hospitals, pay to help states finance their share of Medicaid costs. In turn, the taxes allow states to receive increased federal matching funds while generally holding providers harmless through higher reimbursements that offset the taxes paid. Such taxes are now effectively capped at six percent. The Senate looks to gradually lower that threshold for states that have expanded their Medicaid populations under the Affordable Care Act (or Obamacare) until it reaches 3.5 percent in 2031, with exceptions for nursing homes and intermediate care facilities. Industry groups have warned that limiting the ability of states to tax providers may lead to some states making significant cuts to their Medicaid programs as they make up for the lost revenue in other ways. The Medicaid provision could be a flashpoint in the coming House and Senate negotiations. Sen. Josh Hawley, R-Mo., was highly critical of the proposed Senate changes. 'This needs a lot of work. It's really concerning, and I'm really surprised by it,' he said. 'Rural hospitals are going to be in bad shape.' Tax breaks for business: The House bill would allow companies for five years to fully deduct equipment purchases and domestic research and development expenses. The Senate bill includes no sunset, making the tax breaks permanent, which was a key priority of powerful trade groups such as the US Chamber of Commerce. Clean energy tax credits: Republicans in both chambers are looking to scale back the clean energy tax credits enacted through then-President Joe Biden's climate law. It aimed to boost the nation's transition away from planet-warming greenhouse gas emissions toward renewable energy, such as wind and solar power. Under the Senate bill, the tax credits for clean energy and home energy efficiency would still be phased out, but less quickly than under the House bill. Still, advocacy groups fear that the final measure will threaten hundreds of thousands of jobs and drive up household energy costs. Odds and ends: The House bill would allow millions of Americans to use their health savings accounts to pay for gym memberships, with a cap of $500 for single taxpayers and $1,000 for joint filers. The Senate bill doesn't include such a provision. The House reinstates a charitable deduction for non-itemizers of $150 per taxpayer. The Senate bill increases that deduction for donations to $1,000 per taxpayer. Republicans in the House bill included a new annual fee of $250 for electric vehicle owners and $100 for hybrid owners, which would be collected by state motor vehicle departments. The Senate bill excludes the proposed fees.
Yahoo
18-05-2025
- Business
- Yahoo
An increasingly popular healthcare savings strategy could get more lucrative under GOP tax bill
While Republicans decide how far to go with funding cuts and tighter restrictions for low-income healthcare coverage, they want to broaden rules for accounts designed to pay medical bills — which double as a retirement-planning tool that can give wealthier households a leg up. The tax bill that advanced from the House Ways and Means Committee this week is hundreds of pages long, but it devotes a portion of provisions to health-savings accounts. I'm 57 and ready to retire next year on $7,500 a month, but my wife says no. Who's right? The U.S. just lost its last pristine credit rating. What that means for markets. My husband will inherit $180K. I think we should invest the money. He wants to pay off his $168K mortgage. Who's right? My second wife says her 2 kids should inherit our estate, but I also have 2 kids. Is that fair? My husband and I spend more money on our daughter and her family than on my single son. Do we compensate him? See: Trump's big tax bill is in jeopardy. Here's why some in GOP are getting cold feet. Don't miss: More SALT should be on America's tax-deduction menu, argues Brett Arends. Way more. People could put more money in these tax-advantaged accounts and working seniors would have more time to contribute, according to the bill. It would also widen the types of healthcare plans able to use these accounts and let users pay for their gym memberships with account money, among other things. 'If passed, it could help higher-income clients shelter more income and give younger families and small-business owners more room to save aggressively for (inevitable) future healthcare costs,' wrote Craig Toberman, partner at Toberman Becker Wealth in St. Louis. The GOP's tax bill is 'taking one of the most tax-efficient retirement-planning vehicles and just jump-starting it even further,' Toberman added in a phone interview with MarketWatch. Over 39 million HSA accounts had almost $147 billion in assets by the end of last year, according to Devenir, an investment-solutions provider for HSA accounts. The 2024 collective asset balance was up almost 19% from the prior year, Devenir data showed. Yet the potential changes to HSAs are among the latest developments in the recurring story of rising healthcare costs in the U.S. The GOP tax and spending bill is not a done deal — not by a long shot. One reason is the debate raging on Medicaid funding and eligibility requirements. Democrats and other critics say millions of Americans could unfairly lose their health coverage, while GOP advocates say the program's costs have to come under control. Republicans also don't seem inclined to extend enhanced tax subsidies for health-insurance plans people buy on the Affordable Care Act's exchange. Meanwhile, insurance premiums keep rising; the average annual premium for family coverage through a job increased by 7% to $25,572 last year, according to KFF. So there aren't easy answers on whether possible changes for HSAs would be a win for America's healthcare system or its affordability woes. But the bill's proposals could still be a win for HSA account holders, said Jake Spiegel, senior research associate at Employee Benefit Research Institute, a think tank studying the retirement, health and financial benefits that Americans get through their jobs. The bevy of changes proposed for HSAs aren't 'radical departures,' Spiegel noted. 'That being said, even at the margins, this could be pretty useful for some folks.' HSAs are used with health-insurance plans that have deductibles above a certain price tag, known as high-deductible health plans. This year, the threshold is $1,650 for individual plans and $3,300 for family coverage. Health-savings accounts are supposed to give users a tax-efficient way to pay for medical care, some healthcare experts say. The accounts are also lauded by financial planners like Toberman as 'triple play' to minimize a person's tax bill over the long term. Paycheck money deposited into an HSA is pretax, and there's a deduction for people who put money into an account outside an employer. HSA funds can stay as cash or they can be invested in the stock market, like a 401(k) account for retirement. The money grows tax-free, and distributions are tax-free when used for qualified medical expenses. (There's a 20% penalty when the expense isn't related to medical care.) After age 65, the penalty goes away, but distributions for nonmedical expenses still count as ordinary income. The biggest change in the tax bill would be increased contribution limits. This year, the limit is $4,300 for individuals and $8,550 for family coverage, while account holders age 55 and over can add an extra $1,000. The bill would double the contribution amounts. While there are no income restrictions on who can contribute to an HSA now, the bill would impose an income threshold for who could add the extra $4,300/$8,550 portion that's indexed for inflation. The phase out begins at $75,000 adjusted gross income for people with self-only coverage and $150,000 for those with family coverage. Income-based phaseouts are one hallmark of the GOP bill as it stands. In other notable changes, senior citizens above age 65 could enroll in Medicare Part A and still contribute to their HSA; under current law, they cannot, Spiegel noted. The extra time to contribute and the extra allowed sums could help older workers who are facing large medical expenses or anticipating them later on, he said. See also: This is Generation X's biggest retirement worry — and it's not money Planning how much money to set aside for medical needs later in life is a major financial variable, said Toberman. He models clients' future money needs — and usually, 'healthcare costs become the biggest expense category.' Toberman tells clients to contribute to their employer's 401(k) match and put the excess for long-term investments in the HSA while attempting to pay for medical costs out of pocket. There's a slim chance people are stuffing too much money in an HSA 'given the staggering growth rate of healthcare costs,' he said. The save-and-hold approach on HSAs is what Spiegel calls 'the wealth-maximizing strategy' for HSAs. But most HSA users don't handle them that way, he added. Fewer than 15% of account holders contribute to the statutory maximum, he said. Even when HSA funds are rolled up in investments rather than cash, most users are still taking distributions on their accounts, 'which does not conform to that wealth-maximizing strategy.' Some potential changes to HSAs in the GOP tax bill, like higher contribution limits, are 'well intentioned,' said Michael Cannon, director of health-policy studies at the Cato Institute, a libertarian-leaning think tank. Then there are the bill's proposals to let HSA money go towards 'qualified sports and fitness expenses.' The bill caps allowed expenses at $500 for a single filer and $1,000 for a joint return, but it's an example of how taxes distort and complicate healthcare, according to Cannon. 'How much more is Congress going to expand the definition over time to include sneakers and so forth?' Cannon said. 'It's just silly because this is about medical care.' While there are some HSA-related ideas Cannon supports, the GOP's bill is not addressing healthcare's glaring flaws, he said. 'Overall, this bill is wildly irresponsible,' Cannon added, because it's not doing enough to curb the costs and national debts incurred from programs like Medicare and Medicaid. Katherine Hempstead, a senior policy officer at the Robert Wood Johnson Foundation, a philanthropic organization focused on public health, is concerned the country is 'going to take a great leap back on coverage.' HSAs are 'a symptom of excessive complexity of our systems,' she said. If financial planning with these accounts can help people avoid selling their home and assets or winding up in 'a Medicaid-financed nursing home, there's a value to that.' Yet broader rules for HSAs are 'second-level help,' Hempstead said, 'where the problem is we are still living in a world where not everyone has affordable health coverage.' 'I am scared to death that I'll run out of money': My wife and I are in our 50s and have $4.4 million. Can we retire early? My wife and I paid off my stepdaughter's $415K mortgage in exchange for her house, but it's now worth $310K. Should we sue? 'I'm flabbergasted': My friend wants to borrow $5,800 to save his home from foreclosure. What should I do? 'We live modestly': My wife and I have $900K in stocks and $380K in savings and CDs. Are we holding too much cash? 'We're not wealthy': My niece is marrying out of state and she has a honeymoon fund. Is that cheeky? Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
