Chapter 5, Problem 1MCQ

To determine

Concept Introduction:

Gross income is the starting point for calculating a taxpayer’s liability. It includes all the income from any sources unless there is an exception in the law. In gross income, non-cash items are included at the fair market value. These incomes are excluded from taxation, called exclusions, and these exclusions are available for income such as life insurance, health saving account etc.

To explain: The false statement about health saving account

Answer to Problem 1MCQ

The answer is option “B”

Explanation of Solution

Under the health savings account, the contribution to HSAs is the deduction for AGI or limited to a certain amount depending on whether high deductible insurance covers an individual or family. Earnings and unused contributions accumulated in HASs are not taxed, and distributions to cover medical expenses are also not taxed. As per the law, contribution to HSAs must generally be made by April 15 of the year following the year for which the contribution is made. And distributions that are not used to pay for qualified medical expenses are subject to both income tax and a 20% penalty.

The out-of-pocket limit under the affordable care act is generally higher than the IRS limits determine tax compliance for HAS. Therefore, option B is false that HSAs are available to any taxpayer using a health plan purchased under the affordable care act.