Pennsylvania Individual Income Tax Deductions
- The three types of deductions against income are medical savings account contributions, health savings account contributions and IRC Section 529 tuition account program contributions.
- A medical savings account is different than a flexible spending account. Medical savings accounts, according to the U.S. Department of Labor, are savings accounts specifically used for non-reimbursed health care expenses. The employee or the employer makes contributions. Normally the employee is self-employed or the firm is a small one, having 50 employees or less.
- A health savings account (HSA) is a tax-free financial account designed to help save for future health care expenses. The health savings account can be used to cover traditional medical costs as well as many things not be covered by traditional health insurance. The balance in a HSA rolls over at the end of the year and stays with the employee from employer to employer.
- College tuition costs rise each year. A 529 plan, according to the Securities and Exchange Commission, is defined as "a tax-advantaged savings plan designed to encourage saving for future college costs." There are two types of the 529 plan: prepaid tuition plans and college savings plans.
- Prepaid tuition plans basically purchase credits at participating colleges for future tuition. In some cases, room and board can also be prepaid. Most prepaid plans are sponsored by the individual state governments and have residency requirements. This plan locks in the tuition cost.
- The college savings plan includes tuition, room and board, any mandatory fees, books and computers. Unlike the prepaid plan, this one is not government backed or guaranteed. Therefore they are at the mercy of the market. Enrollment is open year round.