Historically, I’ve talked about how I’ve used pre-tax benefits to pay for health or commuting expenses for myself or my wife. While I find value in all of those posts (which you can see here), I’m going to shift focus and talk about how pre-tax benefits are helping with our kids going off to college.
It feels like just last week that my first two kids– our twins, Rebecca and Hunter – were born. But now they’re both getting ready to head off to college. They’re both still on my insurance. Hunter will continue to be claimed on our taxes. However, Rebecca will be filing on her own this year. These are important distinctions to understand as I learned there are multiple definitions of a dependent. I will cover why this matters in a moment. Second, the HSA plays an important role for both kids. However, we had a little extra planning for Rebecca, who has chosen an out of state school.
What is a dependent?
I received an education on the different definitions of a dependent. Who knew it mattered? But, as I now know, it does.
For insurance and flexible spending account purposes, a dependent can be an adult child under the age of 26. This “adult child” is eligible to receive benefits under their parent’s plan.
For Health Savings Accounts, a dependent is defined as a tax-dependent. This means in order for expenses out of the HSA, the child or adult child must be a dependent for tax purposes. With an HSA, the insurance coverage doesn’t directly play a role in determining whose expenses can be paid from an HSA.
There is yet another definition of a dependent when discussing Dependent Care FSAs. However, since we are beyond our child care days, we will move on.
Paying for college health expenses (in state)
Everything related to paying for college is expensive. Not just room and board. The early visits to the colleges and submitting the application essays. It all adds up. And then of course tuition.
Hunter chose to stay at a local college in state. In terms of paying for college health expenses, Hunter’s case is definitely easier. Since he’s local to the area, most places he would go for healthcare are in-network for our insurance.
But apart from regular check-ups, I figured that Hunter, an avid ultimate Frisbee player, might sustain some injuries. And I was right. He was playing with friends and recently tore his Achilles tendon.
He’s been going to physical therapy. Given that we have a high deductible plan, we’ve had to pay for each session out of pocket. It’s $65 per visit, so it’s adding up quickly.
Thankfully, Hunter is still claimed as a dependent on our taxes, so our HSA can be used to cover his PT sessions. We requested an extra benefits card from our HSA administrator so Hunter can directly pay these expenses from our HSA.
Paying for college health expenses (out of state)
As mentioned, Rebecca decided to spread her net a little wider and go out of state. Being our conscientious child, she has decided to take up residency at college to get in-state tuition rates and will be filing her own taxes. Sadly, she will no longer be our tax-dependent, but we have offered to let her stay on our insurance until she is 26. However, it is a good news / bad news scenario.
While Rebecca is able to stay on our insurance, some of her out-of-pocket expenses are higher as she deals with out-of-network reimbursement rates. As an example, her annual exam was nearly $300, whereas we paid just $100 for Hunter at our local in-network doctor.
The HSA itself also became a point of difference. We have had our HSA for a while and built a nice reserve. As a tax-dependent, Hunter’s expenses can be paid from our HSA. However, Rebecca is no longer a tax-dependent and cannot use our HSA.
The bright side, we learned, is that since Rebecca is otherwise eligible for an HSA, she can open her own HSA to pay expenses from. While not discussed often, an HSA can be funded by the individual, an employer or a third party (AKA dear mom and dad in this case). We have funded $1,000 to her HSA to help her with expenses. Barring any major issues, she should be set for the year. Besides, we can always increase contributions to an HSA at a later date should the need arise. At tax time, Rebecca will be able to claim the HSA contributions we made on her taxes for some extra savings.
Pre-tax benefits and paying for college
While paying for college usually doesn’t conjure up images of pre-tax benefits, the accounts can actually come into play quite a bit. If you have kids going to college and you’re planning out their healthcare, check out this guide to student health care coverage from HealthCare.gov. (And don’t panic. They’ll be fine).