Should you claim your medical expense using the Medical Expense Tax Credit, or under your Health Spending Account?
Let's crunch some numbers.
For the following example, we are using the below metrics for a business owner:
Personal Income: $250,000 Marginal Tax Rate ON: 53.53%
Medical Expenses: $5,000 HSA Admin Fee: 7.5%
Savings Comparison
In the example, on the right you will see the true cost to your company when you pay for a $5,000 medical expense personally with after-tax dollars. To get $5,000 you must withdraw $10,759.63 from the company. $5,759.63 or approximately 53% is lost to income tax. Plus, given the minimum threshold of $2,352 set out by the CRA, you would only be eligible for a $530.92 personal tax credit.
The corporation is able to write off 100% of the costs associated with the HSA.
Instead of paying the government 53% tax, you pay admin fees and taxes of roughly $900. Your company saves almost $5,000 in (marginal income) taxes with an HSA!
In conclusion...
This business owner can either spend an extra $5,759.63 in income tax to claim the full $5,000 in medical expenses using the METC and only be eligible for $530.92 reimbursement OR they can write off 100% of the $5,000 expense using their tax free health spending account and only spend $931.25 in admin fees and taxes to receive the full $5,000 reimbursement.
To make it simple...
This business owner can either SPEND an extra $5,759.63 using the METC OR they can SAVE $4,828.38 using their HSA.