FSA or tax credit: Which is best to save on child care?
The sticker shock of daycare, babysitting, or a part-time child care program can cause many parents to panic. Regardless of income bracket, the fact is clear — child care is expensive.
The average annual cost of center-based infant care in the U.S. is $11,959, according to Child Care Aware.
This amount accounts for more than 12 percent of the median married-couple family income — well above the Department of Health and First premier bank collections phone number Services’ (HHS) recommendation that child care should cost no more than 7 percent of household income.
I know that this is true both for my own family, as well as many of the families I work with as a financial planner. For some of us, child care costs are equal to carrying a second mortgage month to month.
Financially preparing for child care
Families each plan for the financial stress of child care in their own way. Some parents choose to have one of them stay home full time with kids who aren’t in school yet because it actually costs less than having a dual income household that pays for full-time child care. Other families save in advance for child care expenses or look for lower-cost solutions, such as an in-home daycare, care from relatives, or a cobbled together schedule of drop-off programs, babysitters, and flexible work arrangements that allow partners to tag team and simultaneously work/care for their kids.
When my husband and I decided it was time to grow our family, we immediately started budgeting and saving for child care costs. We also got appropriate insurances in place, like term life insurance, while we were young and healthy to help save on costs. While this helped to offset the costs, we now have two little ones with full-time care, and the monthly expense adds up quickly! No matter which way you look at it, the cost of child care often sparks some tough financial decisions for a family.
Saving ahead of time helped put a dent in our upfront costs, but we also had to take a close look at how child care fit into our lives, and we use ongoing financial planning strategies to reduce the impact that those expenses have on your family’s budget.
Two of the strategies that many families might consider to help augment the cost of child care are the Dependent Care Flexible Spending Accounts (FSA) and the Child Care or Dependent Care Tax Credit. Families can only opt to use one option, and you may need to crunch some numbers or speak with a financial advisor to figure out which option makes the most sense for your family.
What is a Dependent Care FSA?
A Dependent Care FSA is an employer-sponsored, pre-tax account. You set up automatic deductions from your paychecks that are contributed to this account and are eligible to use those funds for qualifying child care expenses. The current maximum contribution is $5,000 per year for can you use hsa card to pay care credit household. So, even if both you and your spouse have a Dependent Care FSA available through your individual employers, you can only contribute $5,000 total to one or across both accounts.
Potential benefits of a Dependent Care FSA
- Your Dependent Care FSA is funded the heritage foundation koch brothers pre-tax dollars. Much like a workplace retirement plan, this helps to reduce your total taxable income, meaning you may pay less overall taxes as a result.
- Dependent Care FSAs are also sheltered from the 7.65% Social Security and Medicare tax.
- In most cases, Dependent Care FSAs are sheltered from state taxes, as well.
An example of your tax savings would be: If you contribute the maximum $5,000 in a given year, and fall into the 24% tax bracket, you’d be saving about $1,583 a year in taxes including both federal income tax and the 7.65% Social Security and Medicare tax.
Potential drawbacks of a Dependent Care FSA
While Dependent Care FSAs have some obvious positives, there are a few drawbacks.
- FSAs are use-it-or-lose-it accounts. The funds you contribute don’t roll over from year to year. If you and your partner’s child care plans change, then you may be out that money.
- Not all employers offer Dependent Care FSA options.
- You’ll need to make sure all of your expenses qualify. This means tracking receipts, reimbursements, and other qualifying costs associated with your child care and making sure that all child care services you use are eligible for the funds in a Dependent Care FSA. For example, the cost of babysitters hired for care unrelated to your employer may not be qualified expenses for reimbursement.
Because FSAs don’t offer a year-to-year rollover, you’ll need to carefully budget tarrant county jail release the amount of qualifying child care related expenses you actually have (although it’s not hard to get to the $5,000 limit these days). If you over contribute to the account and don’t use the full amount of funds, you’ll lose that money at the end of the year.
What is the Child Care Tax Credit?
Qualifying for the Child Care and Dependent Care Tax Credit requires that you:
- Have work-related expenses for child care. Basically, child care has to be necessary so that you can work. To prove this, the government requires that both parents provide proof of income. The exception to this rule is if a spouse is disabled or a full-time student.
- The care has to be for qualifying kids, 13 years old or under. A spouse or dependent who lives with the taxpayer for more than half the year and is either physically or mentally incapable of caring for themselves also qualifies.
- There is a limit to how much the credit is worth – which is typically between 20-35% of qualifying child care costs. This percentage directly correlates with your income.
As of 2019, the total expenses you can claim is $3,000 for one child and $6,000 for two or more children. The credit starts at 35% for taunton heritage trust lowest income earners and goes down first tennessee bank nashville routing number 20% for anyone earning $43,000 or more. Individuals who pay for child care expenses for their children and earn more than $43,000 may be eligible for a federal tax credit of up to 20% percent of the cost of care. So regardless of how much you pay, the potential maximum child and dependent care credit is $600 (20 percent of $3,000) for the care of one person, twice that for two or more.
Remember to deduct any financial help your employer offers for child care prior to calculating your credit. Occasionally, an employer will iglesia de san jose obrero en winnetka ca a child care stipend, and that amount doesn’t count toward your tax credit.
The potential benefits of using the Child Care Tax Credit
The Child Care Tax Credit can be a great option for parents looking to reduce the impact that child care costs have on their monthly budgets. A few of the benefits of this tax credit are:
- The Child Care Tax Credit is a direct way to lower the amount of taxes you owe.
- If your family earns less than $43,000 a year, the tax credit may provide a larger benefit to you than a family who owes more.
- The Child Care Tax Credit can you use hsa card to pay care credit an excellent way for individuals without a Dependent Care FSA option to offset some of the cost of child care for their family.
The potential disadvantages of the Child Care Tax Credit
Although saving money on your taxes may feel like it’s always a good idea, there are a few drawbacks to the Child Care Tax Credit to keep in mind.
- The limits on the Child Care Tax Credit are lower than what many families spend each year on child care.
- If you’re a high-income family that earns over $43,000, the tax benefits that come with using a Dependent Care FSA may save your family more money than the Child Care Tax Credit
Can I use a Child Care Tax Credit and a Dependent Care FSA?
With both of these money-saving options available, you might be wondering if you can take advantage of them simultaneously to maximize savings. Some stipulations restrict who can utilize both the Child Care Tax Credit and the Dependent Care FSA in their financial planning. And, in many cases, you may have to choose only one option for your family.
However, there are some exceptions. For example, if your family has two or more kids and you’ve already maxed out your Dependent Care FSA to the $5,000 limit, and your qualifying child care expenses hit or exceed the $6,000 cap for the Child Care Tax Credit — you can take advantage of both the FSA and the Tax Credit. The Child Care Tax Credit will only be applicable on the $1,000 that was “unreimbursable” from your FSA. So if your income puts you in the 20% credit range, that could save you another $200 on taxes.
Which option is right for your family?
If you’re in a situation where you need to pick between the Dependent Care FSA or the Child Care Tax Credit, you can you use hsa card to pay care credit start by calculating your total child care expenses each year, and the benefits you’d receive using each program.
You should also consider how you’d maximize tax savings with whatever vehicle you choose. A great way to do this is by staying aware of what expenses qualify for either the Dependent Care FSA or the Child Care Tax Credit. For instance, you may know that daycare or preschool qualifies as wings financial credit union locations mn deductible child care cost. But did you know that after-school care or day camp during the summer or school breaks may also qualify for either option?
It’s also important to be clear on which babysitting options qualify as a deductible expense and to make sure you keep receipts, a contract, or pay your babysitter via a third-party wage system, so you have all your paperwork in place.
Think about your overall financial picture
Remember, as with any decision involving taxes, your budget, or your child care options, maximizing your total savings isn’t about picking the “best” option out there — it’s about picking the right option for you and your family. Keep in mind that, while it’s tempting to save money on taxes by using either tax credits or tax-friendly accounts, you should also make sure that your tax savings plan fits into your big-picture financial goals. Speaking to a tax professional can help you to decide whether the Child and Dependent Care Tax Credit or the Dependent Care FSA (or both) is a better option for you — and speaking with a comprehensive financial planner can help you structure a plan that addresses your child care costs and balances them with your other expenses and savings goals for your family.
Mary Beth Storjohann, CFP® and Founder of Workable Wealth, is an author, financial planner and accountability partner working to help clients in their 20s-40s across the country make smart, educated choices with their money. Her recent accolades include the “Top 40 Under 40” by Investment News, “10 young Advisors to Watch” by Financial Advisor Magazine, and “10 of the Best Personal Finance Experts on Twitter.” She frequently appears on NBC as a financial expert and her expertise has been featured in The Wall Street Journal, CNBC, Forbes and more.
Haven Life Insurance Agency offers this as educational information. Haven Life does not offer investment or tax advice and encourages you to seek advice from your own legal counsel or tax professional.
Top 10 reasons to use health savings accounts
You’ve probably heard of health savings accounts (HSAs), and you may have wondered if one would be a good fit for you. You aren’t alone.
According to a survey released in 2021, approximately 30 million Americans have chosen to use a health savings account coupled with a high-deductible health plan (HDHP) to pay for current and future healthcare costs. More than half of American workers with employer-sponsored health coverage were enrolled in HDHPs as of 2019 (some people have an HDHP but opt not to open an HSA; you’re allowed to contribute to an HSA if you have HDHP coverage, but are not required to do so).
HSAs have increased in popularity since their debut in 2004. Understanding the increase in enrollment isn’t difficult when one takes a closer look at how HSAs work and the impressive array of benefits they offer to people willing and able to use them.
Who can utilize HSAs?
In order to contribute to an HSA, you need to be covered under a high-deductible health insurance plan, either obtained through your employer or purchased on your own. The majority of large employers offer an HDHP option (70% did so in 2018), and HDHPs are available for purchase in the individual market nearly everywhere in the country. (That means you can have an HDHP and HSA even if you buy your own health insurance. An employer doesn’t have to be involved.)
Once you’re enrolled in an HDHP, you can open an HSA (or sign up for the one your employer uses) and begin making contributions. And if you’re on the fence about whether it’s the right move for you, here are some things to keep in mind:
1. HSAs offer a triple tax advantage
The HSA is a rare breed in terms of tax-advantaged accounts:
- The money you put into your HSA is pre-tax.
- While the money is in your HSA, there’s no tax on investment gains or interest earned in the account.
- And then when you withdraw the money, it’s still tax-free – as long as you use it to pay for qualified medical expenses.
Contributing to your HSA reduces your ACA-specific modified adjusted gross income, which is important to keep in mind if you’re buying your own coverage in the health insurance marketplace/exchange. The higher your ACA-specific MAGI, the smaller your premium subsidy will be (normally, there’s an income cap for subsidy eligibility, equal to 400% of the poverty level; that’s been eliminated for 2021 and 2022 as a result of the American Rescue Plan). You might find that an HSA contribution makes you eligible for a larger premium subsidy. Here’s more about how this works.
2. Paying medical expenses with pre-tax dollars
Once you’ve put money in your HSA, you can withdraw it at any time to pay for a qualified medical expense. And qualified medical expenses go well beyond the out-of-pocket costs for services that are covered by your health insurance plan. They also include includes things like dental and vision costs, as well as products like sunscreen (SPF 30+), bandages, and lip balm.
If you don’t have an HSA, you can only deduct medical expenses by itemizing your deductions on your tax return. And even if you itemize, you can only deduct medical expenses that are in excess of 7.5% of your income.
3. Your HSA can be a backup retirement account
If you withdraw money from your HSA before you turn 65 and you’re not using it to pay for qualified medical expenses, you’ll have to pay income tax and a 20% penalty. (Don’t do this unless it’s a dire emergency!)
But once you turn 65, that 20% penalty no longer applies. You can continue to use your HSA funds for medical expenses, avoiding taxes altogether on the withdrawals. But if you choose to withdraw the money for other purposes, you’ll just pay income tax. This is similar to how a traditional IRA works in terms of taxes. (Note that with a traditional IRA, you can start to withdraw money penalty-free at age 59.5, whereas with an HSA, you have to be 65.)
And unlike traditional IRAs, you’re not required to start taking money out of your HSA when you turn 72. If you want to leave it in the account to continue to grow, you can do that.
4. Pre-tax contributions … regardless of your income
Although you can think of your HSA as a backup retirement account, there is no income limit – on the low end or the high end – for deducting HSA contributions.
This is not the case for IRAs: There’s an income limit for Roth IRA contributions, and an income limit for being about to contribute pre-tax money to a traditional IRA if you also have a retirement plan at work. And both require you (or your spouse) to have enough earned income to cover the contributions.
But to contribute to an HSA, you just need coverage under an HSA-qualified high deductible health plan (HDHP) without any additional major medical coverage, and you can’t be claimed as a dependent on someone else’s tax return. Your income isn’t a factor.
5. The money in your HSA continues to grow …
With an HSA, there’s no “use it or lose it” provision. This is one of the primary differences between an HSA and an FSA. If you put money in your HSA and then don’t withdraw it, it will remain in the account and be available to you in future years.
6. … and you can choose how your HSA grows
HSA funds can be kept in basic interest-bearing accounts – similar to a regular savings account at a bank or credit union – or, if you choose an HSA custodian that offers it, you can invest your HSA funds in stocks, bonds, or mutual funds.
There’s no single right answer in terms of what you should do with the money in your HSA before you need to use it. If you’re planning to withdraw all or most of your contributions each year to fund ongoing medical expenses, an FDIC-insured institution might be the best choice. The account will likely only generate small amounts of interest, but it will also be protected from losses.
On the other hand, if you’re looking at your HSA as a long-term investment and your risk tolerance is suited to the stock market’s volatility, you might prefer to invest your HSA funds. Note that most HSA owners do not have their HSA funds invested. For some, this is a calculated decision based on their risk tolerance and their need to access the money in the near future. But for others, the account might serve them better if the funds were invested, but they simply don’t understand the options available to them.
If you buy your own HDHP, you can select from any of the available HSA custodians. (Pay attention to fees, investment options, and expense ratios, as is always the case with investment accounts.)
If you have an HSA through your employer, you might be limited to using the HSA custodian that your employer has selected, at least as far as your employer’s contributions go. And HSA contributions made via payroll deduction are typically free of income tax and payroll tax. You can’t avoid payroll taxes if you make your own HSA contributions outside of your employer’s payroll.
But you’re free to establish a separate HSA on your own, and transfer money out of the HSA your employer selected, and into the one you picked yourself. The IRS considers this a transfer, instead of a rollover, so there are no limits on how often you can do this.
Ready to try out a Health Savings Account?
7. You can leave your job and take your HSA
If you have an HSA through your employer, the money in the account is yours. When you leave your job, you get to take can you use hsa card to pay care credit remaining HSA balance with you. This is another difference between FSAs and HSAs.
You can choose a new HSA custodian and transfer the money if you wish. There are no taxes on the HSA money you take with you when you leave your job, unless you withdraw the money and don’t use it for medical expenses.
8. Deductibles aren’t necessarily higher than other plans
You must have a high-deductible health plan (HDHP) in order to contribute to an HSA. And it’s understandable that the term “high-deductible” makes people nervous. But the deductibles aren’t necessarily higher than the deductibles for non-HDHPs, and in some cases, they’re even lower.
For 2022, IRS regulations require HDHPs to have deductibles can you use hsa card to pay care credit at least $1,400 for an individual and $2,800 for a family. But average deductibles for Bronze and Silver plans in the individual market are considerably higher than that. Among people who have employer-sponsored plans that include deductibles (about 85% do), the average deductible for a single employee is nearly $1,700.
And the maximum out-of-pocket limits for HDHPs are lower than the maximum out-of-pocket limits for other plans – a difference that is getting wider with each passing year. In 2022, the HDHPs have to cap out-of-pocket costs at no more than $7,050 for an individual, and $14,000 for a family. In contrast, ACA regulations allow non-HDHPs in 2022 to have out-of-pocket limits as high as $8,700 for an individual, and $17,400 for a family.
So although HSA-qualified plans are officially “high-deductible,” they sometimes have deductibles and out-of-pocket limits that are lower than other available plans. It’s possible to find HSA-qualified plans at the Bronze, Silver, and Gold metal levels if you’re shopping for your own coverage.
And as time goes by, HDHPs may start to cover more services before the deductible, for people with certain chronic conditions. Until 2019, HDHPs were limited to covering only preventive care before the deductible (ie, prior to the insured meeting the minimum deductible amount that the IRS sets each year), and the definition of preventive care was updated in 2013 to align with the preventive services that the ACA requires all non-grandfathered health plans to cover.
But in July 2019, in response to an executive order that had been signed the month before, the IRS issued new guidelines for preventive care that can be covered before the deductible on an HDHP without forfeiting the plan’s HSA eligibility. Under the new rules, an HDHP can cover, pre-deductible, certain specific health care benefits for people with certain chronic conditions and the health plan can remain HSA-eligible (assuming it meets all of the other requirements for HSA-eligibility. For people with the following chronic conditions, these services can be covered before the deductible on an HDHP:
- Congestive heart failure or coronary artery disease: ACE inhibitors and/or beta blockers
- Heart disease: Statins and LDL cholesterol testing
- Hypertension: Blood pressure monitor
- Diabetes: ACE inhibitors, insulin or other glucose-lowering agents, retinopathy screening, glucometer, hemoglobin A1c testing, and statins
- Asthma: Inhalers and peak flow meters
- Osteoporosis or osteopenia: Anti-resorptive therapy
- Liver disease or bleeding disorders: International Normalized Ratio (INR) testing
- Depression: Selective Serotonin Reuptake Inhibitors (SSRIs)
Note that HDHPs are not required to offer any of these benefits pre-deductible, unless a state decides to require it on state-regulated plans. These are benefits that go above and beyond the federally-required preventive care services, so whether to offer these services pre-deductible will be up to each insurer. But offering them will not cause a plan to lose HDHP status, which would have been the case prior to July 2019.
9. There’s no deadline for reimbursing yourself from your HSA
When you pay a medical bill and you have an HSA, there’s nothing that says you have to pull money out of your HSA to cover the medical bill. And there’s also no time limit on when you can reimburse yourself. As long as the medical expense was incurred after you established the HSA, and you didn’t take it as an itemized deduction, you can reimburse yourself years or decades later — after letting your HSA funds grow in the meantime.
So imagine that you’re contributing to your HSA each year, and also spending a few hundred or a few thousand dollars each year in medical expenses. You pay those bills from your regular bank account, keeping careful track of how much you pay and retaining all of your receipts.
Now let’s say that you decide you want to retire a few years early, before you can start withdrawing money from your regular retirement account. At that point, you can gather up all of the receipts from all the medical expenses you’ve paid since you opened your HSA, and reimburse yourself all at once (this is why it’s so important to keep your receipts — if you’re ever audited, you’ll need to be able to show that the amount you withdrew from your HSA was equal to the amount you had paid in medical bills over the years).
The money you withdraw is still tax-free at that point, since all you’re doing is reimbursing medical expenses (again, be careful not to withdraw more than you’ve spent in documented medical expenses; if you do, you’ll have to pay income tax and a 20% penalty on the excess withdrawal). But because you waited a few decades to reimburse yourself, you’ve given the money in your HSA many years to grow, tax-free, can you use hsa card to pay care credit in a potentially larger stash of funds.
10. Your HSA can be your long-term care fund
If you’re healthy and don’t have much in the way of medical expenses, you can think of your HSA as a really long-term investment. You’ll have to stop contributing to it once you’re enrolled in Medicare, but the money that’s already in the account at that point can continue to grow from one year to the next during your retirement.
You might find that you want to use your HSA funds, tax-free, to pay Medicare premiums. (That’s Part A if you’re not eligible for premium-free Part A, as well as Part B and Part D. You can also pay Medicare Advantage premiums with HSA funds, but you cannot pay Medigap premiums with tax-free HSA money.) Or you might need the HSA funds to cover out-of-pocket medical expenses during retirement.
But if you end up needing long-term care, the cost is likely to dwarf the out-of-pocket medical expenses you had earlier in your retirement. Medicare doesn’t cover long-term care, and Medicaid only steps in if your income is low and you have exhausted almost all of your assets.
You can buy private long-term care insurance, but some people opt to treat an HSA as an investment earmarked for potential long-term care bills incurred late in life. If you don’t end up needing long-term care, your HSA can be passed on to your heirs, similar to a retirement account.
Clearly, there are a lot of advantages to an HSA. If you’re enrolled in an HDHP, it’s definitely in your best interest to set up an HSA and fund it. And if you don’t currently have HDHP coverage, it’s well worth considering as a future option.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.
Using Your Debit Card
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This article outline how you can easily access money in your health spending account(s) with a simple swipe.
With the convenient Further debit card, you can pay for health care expenses and access your account whenever and wherever you need to.
No waiting. No claims to file.
Simply use your card when you want to pay for eligible health care expenses. Money for the expense is transferred directly from your account to your provider or merchant. You don’t have to pay cash up front, submit a claim form, or wait to be reimbursed.
Easily monitor your account.
You can check account balances, view transactions and use our online planning tools at www.hellofurther.com.
When will I receive my card?
If this option is offered by your group, you will receive a debit card in the mail when you sign up for an account.
How to use it
- You can use your debit card to pay your portion of eligible medical, dental, and vision expenses.
- You can use your debit card at provider offices.
- For medical claims usually processed by your health plan, simply write your debit card number on your doctor’s bill and return it to the provider.
- You can also call your health care provider with your debit card number.
Below is an example of how you can use your debit card to pay for a clinic visit.
|Scenario: You cut your hand doing yard work and go to the doctor, who examines the wound and applies a few stitches.|
Step 1 Your doctor submits the claim to your health plan
Step 2 Your health plan pays the portion of the claim that’s covered by them.
Step 3 You receive an Explanation of Health Care Benefits (EOB) from your health plan stating what has been paid by them and any amount that you owe.
Step 4 If you have a card and did not use it at the time of service, simply write your debit card number on the bill or call your health care provider’s business office with the number. You can show your debit card before or after services. Either run it as a “credit” to simply sign your name or choose "debit" to use a PIN.
Step 5 The balance due after your health plan has paid is charged to your debit card and paid from your bank of america teller locations near me to your provider.
Frequently Asked Questions
- Can I use my debit card for online purchases?
- Yes. You can use your debit card for online purchases, such as prescriptions, if the site is a medical merchant.
- Can I withdraw funds at an ATM?
- You cannot use the Further debit card for cash withdrawals from an Automated Can you use hsa card to pay care credit Machine (ATM), from a Point-of-Sale (POS) device, or by any other means. The card will not work in these situations.
- Can I use my debit card to make in-store purchases?
- Yes, for eligible expenses. Just present your debit card to the merchant to pay for eligible expenses. The account will pay up to the available balance.
- Do I need a PIN to use my debit card?
- Once your card is activated, you can use your debit card either by using your PIN or by signing for your purchases and selecting “credit” when asked.
- My debit card was recently denied. Why would that happen?
Your debit card may be denied if:
- There is not enough money in your account to cover the expense. Visit www.hellofurther.com or call us toll free at 800-859-2144 to www mathworksheetsland com grade 6 answer key your account balance.
- The items being purchased are not eligible expenses. For a list of eligible expenses, visit www.hellofurther.com.
- What happens if I use the debit card for a non-eligible expense?
- There are three options:
- You can return the funds to the account by submitting the Reimbursement Return Form (below) within the same tax year of the non-eligible expense.
- You can offset the amount with future expenses that are qualified during the same tax year. You must keep your documentation for your own tax purposes.
- You can declare the amount as a prohibited transaction. You may be subject to income taxes on the amount as well as an IRS penalty.
- What should I do if my debit card is lost or stolen?
- Call Further customer support at can you use hsa card to pay care credit at any time, any day of the week. You can follow the automated prompts to report your card lost or stolen. This will cancel your card and you will be mailed a new one.
How Does CareCredit Work?
Healthcare is expensive. In addition to rent or mortgage payments, healthcare costs can be one of the biggest monthly budget items for many individuals.
Paying medical bills can be a financial burden and a significant challenge. A while back, a variety of well-known lenders and healthcare companies—including GE Capital, JPMorgan Chase, Citigroup, Capital One, UnitedHealth Group, and Humana—launched credit cards designed to help pay for the high costs of healthcare. Though many of these firms have since stopped participating in the program, revolving credit lines for use to cover healthcare costs are still available to consumers.
Branded medical credit cards are essentially an unsecured line of credit offered by some healthcare providers. The card isn't part of the Visa and Mastercard payment network so it can't be used for everyday purchases. It's often a way for doctors to allow patients to finance elective procedures that are not covered by insurance, like cosmetic surgery. Akin to private label retail store credit cards, these products generally have limited usage options and higher long-term interest rates compared with general use credit cards.
- Synchrony's CareCredit has entered into agreements with a broad range of healthcare providers that will accept its credit card as payment for their services.
- Synchrony is one of the largest providers of private label credit cards in the U.S.
- The card can be used to cover traditional medical insurance copayments on covered services; it can also be used for elective medical procedures that are not covered by traditional insurance plans.
- It is important for consumers to keep in mind that CareCredit—and other similar healthcare credit card companies—are in business to make a profit.
How CareCredit Works
CareCredit is a division of Synchrony Financial (SYF). Synchrony is one of the largest providers of private label credit cards in the U.S.
Synchrony's CareCredit has entered into agreements with a broad range of healthcare providers that will accept its card as payment for their services; the card is accepted by over 200,000 healthcare providers in the United States.
The card can be used to cover traditional medical insurance copayments on covered services. The card can also be used for elective medical procedures that are not covered by traditional insurance plans. Some of the medical procedures and wellness services that the card can be used for include vision care, cosmetic surgery, dermatology services, dental services, and hearing care.
The providers range from doctors, dentists, and surgical centers to vision care and hearing centers, hair restoration, and even veterinary services. CareCredit cardholders can go to the CareCredit website and enter a zip code to find local providers that take the card.
By paying with the CareCredit card, consumers are eligible to participate in short-term financing offers that enable them to make payments over six, 12, 18, or 24 months. In addition, there are no interest charges as long as they spend at least $200 and pay the full bill within the agreed-on time period. Extended time periods up to 60 months for minimum purchase amounts of $2,500 are also available, with interest rates as low as 17.9%.
CareCredit Is in Business to Make a Profit
Though can you use hsa card to pay care credit marketing pitches focus on providing access to affordable healthcare, it is important for consumers to keep in mind that CareCredit—and other similar healthcare credit card companies—are in business to make a profit.
They offer no-interest financing, counting on many consumers overextending themselves and being unable to pay their bills in full, thus incurring expensive financing charges. They may also count on consumers misunderstanding the terms.
According to the Consumer Financial Protection Bureau (CFPB), CareCredit has "misled some consumers during the enrollment process by not providing adequate guidance clearly laying out the terms of the deferred-interest loans." Such loans assess interest starting from the date of purchase throughout the promotional period; if cardholders fail to pay the debt in full by the end of that period, they must pay all the accrued interest (not just interest on the remaining balance).
In 2013, CFPB ordered CareCredit (at that time, CareCredit was a subsidiary of GE Capital) to refund $34.1 million to cardholders. In response, the firm created a CareCredit Certification with its providers "in an effort to ensure that every CareCredit card applicant is given a clear, easy-to-understand explanation of financing options available."
However, the firm's "promotional financing options"—the ones with no interest, or a relatively low interest rate—are not available through every provider. Cardholders should check with their provider to determine the available options.
CareCredit also advises cardholders that "paying only the minimum due on your account each month may not pay off your balance before the end of the promotional period" and to contact the company to ensure that you are paying the correct amount "to take advantage of your special financing promotions."
Complexities like this are not limited to CareCredit’s offerings. A medical credit card survey by a group called Consumer Action found similar practices by other healthcare credit card providers.
How Is CareCredit Different From a Regular Credit Card?
CareCredit is a credit card specifically designed for health and wellness needs. You can't use it anywhere or for anything; rather, it's intended to pay for medical expenses at various hospitals, veterinary clinics, dental centers, and private medical practice firms, along with healthcare-related retailers and pharmacies: some 225,000 providers in all.
Also, the financing terms tend to be different from a regular credit card's. Instead of an ongoing, revolving credit line and interest charges, CareCredit offers financing options of 6, 12, 18, or 24 months; no interest is charged on purchases of $200 or more when you pay the full amount due by the end of the period. If you do not, interest is charged from the original purchase date, at an annual percentage rate (APR) that can be as high as 26.99%. lt also offers longer-term healthcare financing for 24- 36- 48- or 60-month periods, at APRs ranging from 14.9% to 17.9%.
Is It Worth It to Get a CareCredit Card?
It can be, especially if you incur a major medical expense that's not covered (or not sufficiently covered) by health insurance, and the provider doesn't accept credit cards. However, CareCredit functions more like a loan than a credit card. It offers payment plans of varying durations, during which you make minimum monthly payments toward the debt. You don't pay any interest during that time, but if you haven't paid off the entire balance by the end of the term, keybank mobile banking app charged interest at a steep rate (currently 26.99%) retroactively from the purchase-of-service date—on your entire original balance, in other words.
For that reason, it's generally always better to use a regular credit card, especially if has a can you use hsa card to pay care credit APR intro offer—or even if it has a lower APR than CareCredit's current 26.99%, which many cards do. And of course, regular credit cards can be used in more places, and offer cash back or rewards, too.
CareCredit probably is easier to get than a regular credit card, though—one of the reasons its interest rates are higher. For larger expenses—$1,000 and up—CareCredit does offer longer-term plans at rates that are somewhat more competitive.
What Are Some Alternatives to CareCredit?
First, check to see if your provider privately offers some sort of pay-over-time arrangement. Many large practices and facilities have repayment plans that don't charge interest or fees as long as you pay regularly.
If it's available through your health insurance plan, consider establishing a Health Savings Account (HSA): You contribute money on a pretax basis—usually taken out of your can you use hsa card to pay care credit your money gets the chance to grow tax-free until you use it for qualified healthcare expenses. If you're on your employer's group insurance plan, there's a similar tax-advantaged account, the flexible spending account (FSA)—but you usually have to use up all the funds in it within the year you contribute them.
Because CareCredit functions somewhat like a loan, with a set repayment period, you might consider just taking out a personal loan from a bank or credit union instead. You'll pay interest along the way, but it's likely to be at a lower rate than the interest charged by CareCredit if you don't settle your entire debt by the period's end.
Finally, consider using a regular credit card as an alternative to CareCredit. If you see a card offering a 0% APR promotion, consider applying for it to use in payment of your medical bills. The minimum payments may well be lower. These promo periods often extend for 18 or 24 months, which are as long as CareCredit's. And even if you haven't paid in full by the time the promo ends, you'll probably incur a lower interest rate—and just on the remaining balance, too.
The Bottom Line
Healthcare credit cards provide a way to make medical expenses more manageable. Of course, consumers must remember that the financing behind these can you use hsa card to pay care credit cards is provided by for-profit companies that are in business to make money. If you're not careful, you can incur significant expenses from the associated fees. Like all credit cards, healthcare-oriented credit cards should be used in a cautious and responsible manner because failure to abide by the terms of the account agreement will be reported to credit bureaus and hurt your credit score. This includes reading the fine print and having a complete understanding of terms and associated expenses.
Health Savings Accounts (HSA) can be used for both medical expenses and saving for retirement — here's how you can get started
If you have a HDHP, you should consider opening a Health Savings Account for its tax benefits and the opportunity to invest for the future. But, this account takes a bit more planning, as you have to look at your current health insurance and health situation.
Like Westlin recommended above, a HDHP is best for those who are generally healthy and have little to no medical expenses. So if a HDHP makes sense for you, a HSA may be a great tool to build wealth.
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