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The Benefits of Offering a Health Savings Account (HSA) to Your Employees

As an employer, staying competitive when hiring top talent can be a challenge. Employees are always looking for ways to save money on their medical expenses, so it’s important to offer great benefits. Have you considered offering Health Savings Accounts (HSAs) to your employees? First, let’s go over some FAQs regarding HSAs.

What is an HSA?

HSAs are personal bank accounts created exclusively for individuals to pay for eligible health expenses and save for future healthcare expenses tax-free.

Who is eligible to contribute to an HSA?

In order to be considered eligible, the following criteria must be met:

  • Individual is enrolled within an eligible High Deductible Health Plan (HDHP)
  • Individual is not covered by any other health insurance plan that is not an HDHP
  • Individual is not covered by Medicare or over the age of 65
  • Individual is not claimed as a dependent on another person’s tax return
  • Individual is not covered by Veteran’s Services (VA) during the last three months
  • Individual is not covered under TRICARE

What is a high-deductible health plan (HDHP)?

An HDHP is health insurance that meets a minimum deductible and maximum out-of-pocket expense requirement set forth by the IRS.

Why are HSAs so great?

Health Savings Accounts offer something for everyone – gaining financial security now and in the future. HSA contributions can be deducted pretax from the employees’ paycheck, lowering their taxable income. It can gain interest, which is also tax free. Lastly, withdrawals from an HSA are tax free, if the money is spent on qualified medical expenses.

Do HSA funds rollover?

Yes. Any unused funds belong to the employee and they are free to retain and continue accumulating toward future healthcare expenses. An HSA is portable, meaning it can be taken with the employee even if they change employers or retire.

Is there an HSA contribution limit?

Every year, the IRS provides inflation-adjusted health savings account contribution limits. The limits include all contributions made to the employee account, whether the employee themselves, or you the employer.

For the upcoming 2020 year, the limit is $3550 for individuals and $7100 for families. $1000 “catch up” contributions can be made over the HSA limits if the employee is at least 55 years of age by the end of a tax year.

What is considered an eligible expense?

The IRS Publication 502 defines eligible medical expenses. The intent is to exclude cosmetic or optional treatments and include necessary medical expenses. An employees’ HSA may also be used for premiums associated with long-term care, COBRA, employer-sponsored retiree medical, and Medicare HMO, Part A or B plans (Medigap Plans excluded). In addition, employees may use HSA funds to pay for health insurance premiums if they are collecting unemployment.

Individuals under the age of 65 who use their accounts for non-medical expenses must pay income tax and up to a 20% penalty on the non-qualified withdrawal. It is the responsibility of the individual to determine if an expense is eligible. If the account holder is over the age of 65, the penalty does not apply, and the individual can use the account to pay for items outside of medical expenses.

Are there other pre-tax advantage plans we can offer our employees?

Absolutely! Read more on the difference between FSAs, HRAs, and HSAs here as well as commuter/parking plans that can be offered here.

For Employers, HR and Benefits Leaders:

Some key employer advantages to offering an HSA:

  • High deductible health plans (HDHPs), which are required when offering HSAs as stated above, are usually less expensive than other group health plans
  • Contributions made to the HSA from the employer are also not taxed – meaning more savings
  • Offering HSA solutions can give your organization a competitive edge. In today’s hiring landscape, there are more jobs available than there are candidates. If you are interested in staying on top of the competition, consider offering pre-tax advantage plans.

Ask us today how you can offer HSAs to your employees, by filling out the form below.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.