What Employers Should Know About Health Savings Accounts (HSA)
As a business owner, you may already be familiar with retirement investment accounts such as 401(k) accounts. But there are other ways you can provide your staff with financial security options. Why not offer a health savings account (HSA) plan?
An HSA is like a personal savings account that can only be used for qualified healthcare expenses. As employees (and employers if need be) contribute to their plans, they accumulate dollars that can go towards covering future healthcare costs.
From a practical standpoint, it may be too late to add HSAs to your benefits package for 2021, but next year is right around the corner. Here are a few things you need to know about employer-sponsored HSAs.
What is an HSA?
An HSA is similar to a flexible savings account (FSA) that is only used for healthcare expenses. Employees covered by qualifying high-deductible health plans (HDHPs) are eligible for tax-favored HSA contributions made by your company, the employees themselves with salary-reduction contributions, or a combination of both.
As of 2021, the maximum contribution to an HSA is $3,600 for an individual and $7,200 for a family. A person who is 55 years old or older at the end of the tax year can contribute an additional $1,000.
Contribution limits apply to both the employer and employee.
Benefits of HSA Plans
Many Expenses Qualify
Eligible expenses include a wide range of medical, dental, and mental health services.
Anyone Can Contribute
Your HSA can be funded by you, your employer, your family members, or anyone who wants to contribute. As explained above, there are, however, limits set by the IRS.
Employers who offer an HSA deduct contributions before taxes from an employee’s paycheck. Employees won’t have to pay taxes on income that goes toward an HSA, which can reduce their overall tax burden. In addition, employers do not have to pay payroll taxes on employees’ pre-tax contributions.
Tax-Deductible After-Tax Contributions
Contributions made with after-tax dollars can be deducted from your gross income on your tax return, thereby reducing your tax bill.
In the case of HSA members with at least $2,000 in their HSA, they can invest the money and earn tax-free interest. Interest earned on HSA contributions or on investments made with HSA assets is never taxed.
HSA withdrawals that are used for qualified medical expenses are not subject to federal (or, in most cases, state) taxes.
The money left in your HSA at the end of the year rolls over to the next year. In comparison, Flexible Spending Accounts (FSAs) normally only allow for a transfer of up to $550 or 2.5 months into the following plan year.
Are HSAs Right for Your Business?
There’s an abundance of health insurance options for employers to choose for their employees. Contact True Texas Benefits today to see if an HSA employer-based plan makes sense for your team.
Call 469-672-6950 or contact us online for Texas employer health insurance options.