Tax on contributions to an employee's HSA; How a family loan can cost extra; A possible hole in homeowners coverage; Easing the burden of pension paperwork
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Q: One of my employees has opened a family Health Savings Account at a bank, as provided for in the Medicare Act passed last year. If I make a contribution to her HSA, will she owe tax on it?
A: No. Your contributions aren't subject to withholding or employment taxes (FICA and FUTA), either, and your employee can't claim them as medical expense deductions. She can deduct her own contributions, but there's a limit on the total amount that can be contributed by her and by you on her behalf. The limit is based on her family health policy deductible, but can't exceed $5,150 for 2004 ($5,650 if she's at least 55).
Keep in mind that the antidiscrimination rules require you to make comparable contributions for all eligible employees with HSA coverage during the same period. Contributions are considered comparable if they're either the same amount or the same percentage of the policy deductible.
Q: Our city council recently passed an ordinance setting stricter home construction standards than were in force when I bought my house. In case of damage, my homeowners policy states that it won't pay the extra cost of repairs to meet the higher standards. Should I consider buying additional coverage?
A: Definitely. Bringing damaged property up to code rather than merely restoring its former condition could involve structural reinforcements, rewiring of the entire house, and other highly expensive upgrades. Make certain, though, that the "law and ordinance" endorsement, as it's called, applies not only to the cost of upgrading the part of the house that suffers damage but also to code-mandated work on the undamaged part.
Q: I've set up a retirement plan for my new practice. At present it covers only my wife, who's my office manager, and me. Do I have to file annual reports for the plan?
A: Not if the plan's assets total no more than $100,000 at the end of the year, and any other employees were ineligible to participate because they didn't meet the plan's minimum age or length-of-service requirements. The filing exemption applies whether the practice is incorporated or not.
You'll have to file annually once the plan's assets top $100,000, even if they fall below that amount in subsequent years. As long as you and your spouse remain the only participants, you can use a simplified form, 5500-EZ. If you discontinue the plan, you must file a final return regardless of the size of the plan's assets.
Q: I'm lending my daughter $25,000 interest-free to help her start a business, but my accountant warns that I might have to pay income tax on the interest I don't collect. How so?
A: You can owe tax on "forgone" interest when you lend a family member more than $10,000 at a below-market rate, as defined in federal regulations. But as long as the total amount you lend to your daughter this year doesn't top $100,000 and she has no more than $1,000 of net investment income, you won't owe any tax. If your daughter has more than $1,000 of investment income, your accountant will need to know the exact amount in order to figure the tax due.
Do you have a money management question that may be stumping other doctors, too? Write: MMQA Editor, Medical Economics, 5 Paragon Drive, Montvale, NJ 07645-1742, or send an e-mail to firstname.lastname@example.org (please include your regular postal address). Sorry, but we're not able to answer readers individually.
Lawrence Farber. Money Management Q&As.
Sep. 17, 2004;81:64.