So how much income tax do you Americans pay?

[zinfamous]

and depends on your job offering an HDHP

i did the stealth IRA HSA for a year but then switched jobs to a place with 0$ deductible insurance

so i can't contribute to an HSA anymore, and am just using up the couple grand in there as i get opportunities (which aren't many with no deductible insurance)

Yes, exactly. The further issue being that such plans may not exist anywhere at some point. So HSAs may stop existing as well.

 

[BrunoPuntzJones]

oh shit....you fooling?

Think I could use it to buy a spendy Aeron chair if I get a note from the doc?

Yes. As long as it is necessary and there is no comparable product for less cost.

 

[zinfamous]

Yes. As long as it is necessary and there is no comparable product for less cost.

You mean necessary, like how the average medical MJ card is "necessary."?

Oh man...and now I have another question!

:hmm:

 

[dullard]

My next goal is to open up an HSA (I think I qualify, have to look at my Kaiser plan, again), and just get free savings and free money and free free free. I've ignored them until now, because I assumed it was the same as those Flex spending account which disappears each year. HSA is different though--pre-tax savings, tax-sheltered growth, and un-taxed withdrawals if you swing it properly.

Congratulations, welcome to the world's best legal tax dodge!

The HSA is the best kept tax secret. You don't pay tax now, your gains are tax free, and if you spend it on health related items your withdrawals are tax free too. Also, no minimum withdrawals or other restrictions. No fees for early withdrawals either (as long as you have a medical expense that year). Nothing legal comes close to that in benefits, not the IRA, not the Roth IRA, not the 401k, all of those pale in consideration. Plus, you get deep discounts on medical bills for (a) having insurance but (b) paying cash.

That said, there are drawbacks:

Drawback 1:
It is hard to find a place that doesn't charge a fee for a low HSA balance. So, it is best to wait until the end of the year to contribute to the HSA, then at the beginning of the next year contribute all you can to the HSA. For example, contribute $6750 on Dec 31, 2016 and another $6750 on Jan 1, 2017 (half that if you are in single coverage and not family). That way, you never have to pay a low balance fee.

Drawback 2:
Very few places have low-fee mutual funds to buy through an HSA. So, be prepared to have to choose a second tier mutual fund instead of something great like Vanguard funds.

Drawback 3:
To maximize the financial benefit, you have to shop around for medical prices. You can spend 10x more or 10x less for the exact same thing across the street. But they won't tell you the price unless you go there in person.

Drawback 4:
To maximize the tax savings, you shouldn't touch the HSA balance. Put the max in you can each year and pay for medical bills out of pocket. Then your HSA can grow tax free forever. Remember, this is better than any savings or better than any retirement account. Your HSA should be your first place to stash money and keep it there. If you have to, reduce your 401k contributions to pay for your medical bills out of pocket. Let it grow a decade or 3 before using your HSA for bills.

The benefits far outweigh the drawbacks. But just don't go into it without thinking so that you can maximize the benefits and minimize the drawbacks.

 

[zinfamous]

Congratulations, welcome to the world's best legal tax dodge!

The HSA is the best kept tax secret. You don't pay tax now, your gains are tax free, and if you spend it on health related items your withdrawals are tax free too. Also, no minimum withdrawals or other restrictions. No fees for early withdrawals either (as long as you have a medical expense that year). Nothing legal comes close to that in benefits, not the IRA, not the Roth IRA, not the 401k, all of those pale in consideration. Plus, you get deep discounts on medical bills for (a) having insurance but (b) paying cash.

That said, there are drawbacks:

Drawback 1:
It is hard to find a place that doesn't charge a fee for a low HSA balance. So, it is best to wait until the end of the year to contribute to the HSA, then at the beginning of the next year contribute all you can to the HSA. For example, contribute $6750 on Dec 31, 2016 and another $6750 on Jan 1, 2017 (half that if you in single coverage and not family). That way, you never have to pay a low balance fee.

Drawback 2:
Very few places have low-fee mutual funds to buy through an HSA. So, be prepared to have to choose a second tier mutual fund instead of something great like Vanguard funds.

Drawback 3:
To maximize the financial benefit, you have to shop around for medical prices. You can spend 10x more or 10x less for the exact same thing across the street. But they won't tell you the price unless you go there in person.

Drawback 4:
To maximize the tax savings, you shouldn't touch the HSA balance. Put the max in you can each year and pay for medical bills out of pocket. Then your HSA can grow tax free forever. Remember, this is better than any savings or better than any retirement account. Your HSA should be your first place to stash money and keep it there. If you have to, reduce your 401k contributions to pay for your medical bills out of pocket. Let it grow a decade or 3 before using your HSA for bills.

The benefits far outweigh the drawbacks. But just don't go into it without thinking so that you can maximize the benefits and minimize the drawbacks.

quick question: you can contribute to it directly, on top of payroll deductions, correct? I seem to recall HSA contributions appearing on the 1040--plus your suggestion of putting the lump in at the end of the year and very beginning seems like the only way to do it.

Also, I seem to recall reading that maintaining employment isn't necessary for keeping it, only having a high deductible health plan, correct? I doubt I will be working here for 5 or more years...

 

[echo4747]

Congratulations, welcome to the world's best legal tax dodge!

The HSA is the best kept tax secret. You don't pay tax now, your gains are tax free, and if you spend it on health related items your withdrawals are tax free too. Also, no minimum withdrawals or other restrictions. No fees for early withdrawals either (as long as you have a medical expense that year). Nothing legal comes close to that in benefits, not the IRA, not the Roth IRA, not the 401k, all of those pale in consideration. Plus, you get deep discounts on medical bills for (a) having insurance but (b) paying cash.

That said, there are drawbacks:

Drawback 1:
It is hard to find a place that doesn't charge a fee for a low HSA balance. So, it is best to wait until the end of the year to contribute to the HSA, then at the beginning of the next year contribute all you can to the HSA. For example, contribute $6750 on Dec 31, 2016 and another $6750 on Jan 1, 2017 (half that if you in single coverage and not family). That way, you never have to pay a low balance fee.

Drawback 2:
Very few places have low-fee mutual funds to buy through an HSA. So, be prepared to have to choose a second tier mutual fund instead of something great like Vanguard funds.

Drawback 3:
To maximize the financial benefit, you have to shop around for medical prices. You can spend 10x more or 10x less for the exact same thing across the street. But they won't tell you the price unless you go there in person.

Drawback 4:
To maximize the tax savings, you shouldn't touch the HSA balance. Put the max in you can each year and pay for medical bills out of pocket. Then your HSA can grow tax free forever. Remember, this is better than any savings or better than any retirement account. Your HSA should be your first place to stash money and keep it there. If you have to, reduce your 401k contributions to pay for your medical bills out of pocket. Let it grow a decade or 3 before using your HSA for bills.

The benefits far outweigh the drawbacks. But just don't go into it without thinking so that you can maximize the benefits and minimize the drawbacks.

Do you know if there are income limits that would exclude somebody from taking advantage of an HSA? Can you still open an HSA if your employer pays for your current healthcare insurance?

 

[zinfamous]

Do you know if there are income limits that would exclude somebody from taking advantage of an HSA? Can you still open an HSA if your employer pays for your current healthcare insurance?

I believe the only restriction is having a properly-defined HDHP, according to teh IRS:

The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2015.

Self-only coverage Family coverage
Minimum annual deductible $1,300 $2,600

Maximum annual deductible and
other out-of-pocket expenses* $6,450 $12,900

* This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies.


The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2016.

Self-only coverage Family coverage
Minimum annual deductible $1,300 $2,600

Maximum annual deductible and
other out-of-pocket expenses* $6,550 $13,100


* This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies.
Self-only HDHP coverage is an HDHP covering only an eligible individual. Family HDHP coverage is an HDHP covering an eligible individual and at least one other individual (whether or not that individual is an eligible individual).

https://www.irs.gov/publications/p969/ar02.html

 

[Svnla]

OP,

Highest income tax rate in the US is about 40% for federal and states are different from high to low to zero state income tax on states such as Texas.

People in the US just don't pay income tax on Federal and States level, we also have to pay other taxes such as:

Payroll, Sale, Property, Gasoline, Estate, Gift, Hotel, Excise taxes on "sin" things such as alcohol, tobacco and so on and pay "fees" such as vehicle registration, school, and so on.

It is a very complex situation, that's why we spend countless hours and tons of money on how to pay (minimize) taxes.

Here is a short article = http://www.usatoday.com/story/money/personalfinance/2014/01/04/taxes-americans-pay/4307825/

and this long Wiki = https://en.wikipedia.org/wiki/Taxation_in_the_United_States

 

[hasu]

... don;t forget that we need to pay for our health insurance too

Edit: This is an interesting thread. I have been wondering about this myself. For some reason, Europeans seem to be ok with their higher taxes.

I think we should take into account the taxes paid by employer on your behalf, sales tax, property taxes in addition to Federal and State taxes. Federal taxes should include Social Security Taxes, Medicare etc

We should also take into account unemployment insurance payouts, the amount and other conditions

 

[rcpratt]

A large portion of the population pays 25% federal income tax

Not sure I agree with this statement. A large portion of the population might be in the 25% marginal bracket, but they're going to be paying much less than 25% on the total.

 

[LPCTech]

All da brackets.

http://taxfoundation.org/article/2016-tax-brackets

 

[dullard]

quick question: you can contribute to it directly, on top of payroll deductions, correct? I seem to recall HSA contributions appearing on the 1040--plus your suggestion of putting the lump in at the end of the year and very beginning seems like the only way to do it.

Also, I seem to recall reading that maintaining employment isn't necessary for keeping it, only having a high deductible health plan, correct? I doubt I will be working here for 5 or more years...

There is no federal reason that you can't contribute to it outside of payroll deductions. I've never had a payroll deduction for my HSA and just contribute directly as I see fit. I ended up going with my main bank for the HSA since the fees weren't too bad and the mutual funds they provided were acceptable. I can just move money either direction online at any time just like it was another bank account. Of course, I move money only once a year so that tax time is easy.

Your company may have a policy about direct HSA contributions vs payroll contributions though. I can't answer you on that.

A HSA is technically not linked to your employer at all. It is your account to do with as you wish. Your employer may make it easier with payroll deductions, but that is about all that they do on it. So, yes, you take it with you as you change jobs. Your next job needs to also provide a high-deductible account though otherwise you won't be able to contribute new dollars to it (you can keep growing your money and spending it, you just can't contribute without a high deductible health plan).

 

[dullard]

Do you know if there are income limits that would exclude somebody from taking advantage of an HSA? Can you still open an HSA if your employer pays for your current healthcare insurance?

As posted above, your only limit is that you have a high-deductible health insurance. In my situation, my wife's company paid all but about $19/paycheck. We paid that measly $19 and then opened an HSA account on our own. But then her employer dropped high-deductible accounts this year and I was sad. My company doesn't provide high-deductible accounts either so we had no way to keep contributing new money to the HSA.

 

[dullard]

Not sure I agree with this statement. A large portion of the population might be in the 25% marginal bracket, but they're going to be paying much less than 25% on the total.

Read the rest of that same post. It goes on to say that deductions and credits drop the number that you actually pay. I could clarify the post if you want, but I think it reads correctly as-is.

 

[dullard]

I think we should take into account the taxes paid by employer on your behalf, sales tax, property taxes in addition to Federal and State taxes. Federal taxes should include Social Security Taxes, Medicare etc.

But then, if we are going to be complete, we should include in the compensation all that we are compensated for (including employer covered health insurance payments, other insurance, and retirement payments). It will end up being close to a wash.

 

[zinfamous]

There is no federal reason that you can't contribute to it outside of payroll deductions. I've never had a payroll deduction for my HSA and just contribute directly as I see fit. I ended up going with my main bank for the HSA since the fees weren't too bad and the mutual funds they provided were acceptable. I can just move money either direction online at any time just like it was another bank account. Of course, I move money only once a year so that tax time is easy.

Your company many have a policy about direct HSA contributions vs payroll contributions though. I can't answer you on that.

A HSA is technically not linked to your employer at all. It is your account to do with as you wish. Your employer may make it easier with payroll deductions, but that is about all that they do on it. So, yes, you take it with you as you change jobs. Your next job needs to also provide a high-deductible account though otherwise you won't be able to contribute new dollars to it (you can keep growing your money and spending it, you just can't contribute without a high deductible health plan).

AH, thanks. I didn't consider looking into my bank ...or even if Vanguard offers one directly? We do have them through work (a University), but I think I would prefer to contribute directly and just leave payroll deductions to the 403b (through TIAA-CREF, which I have allocated 100% into a Vanguard 500 index with institutional shares...so like 0.07% exp ratio)

 

[hasu]

But then, if we are going to be complete, we should include in the compensation all that we are compensated for (including employer covered health insurance payments, other insurance, and retirement payments). It will end up being close to a wash.

What really matters is how much expendable income we end up with. Even though Europeans pay higher taxes, it covers more expenses too. In the end either you pay more to the government or other (possibly private) entities.

I am not talking about quality of services here, because competition always brings better quality.

 

[fskimospy]

The easiest way to look at this would be total tax receipts as a percentage of GDP. That covers income taxes, sales taxes, blah blah blah. It's not perfect as people mention health expenditures come out of tax revenues in other countries but not here, but if you just want to know what you pay in taxes as opposed to what you get for it that's the ticket.

https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP

 

[zinfamous]

AH, thanks. I didn't consider looking into my bank ...or even if Vanguard offers one directly? We do have them through work (a University), but I think I would prefer to contribute directly and just leave payroll deductions to the 403b (through TIAA-CREF, which I have allocated 100% into a Vanguard 500 index with institutional shares...so like 0.07% exp ratio)

ah damn it...My super awesome Kaiser plan which is $24/month (my cost, single coverage) is $0 deductible, with maximum out-of-pocket expenses of $1500/year. Covers all surgeries, emergencies, $15 co-pays.

goddamnit Kaiser, why you so awesome? I would have to switch to get an HSA, but I don't think I wanna? I do need to re-up my colon plumbing this year.