At Remote Quality Bookkeeping™, we are often asked for advice on providing employee benefit programs — especially those related to health care. While we recommend consulting with an insurance specialist or financial advisor for more details, we wanted to provide some general information on the benefits of Health Savings Accounts (HSAs).
In an environment where medical costs continue to rise, employee HSAs can offer an excellent solution. They allow employees a tax-free method of saving money for current and future health-related costs.
What are the other benefits of an HSA?
According to the IRS, there are several benefits of having an Employee HSA:
- Employee contributions are tax deductible. For more information on the annual limits on contributions please see this page.
- Contributions to HSAs made by employers may be excluded from employees’ gross income.
- The contributions “rollover” year after year — there is no “use it or lose it” policy.
- The interest accrued on the assets in the account are tax free.
- Distributions may be tax free if they are covering qualified health care expenses.
- HSAs are “portable” – the funds belong to the employee even if they move to another company or retire.
Do your employees qualify to set up an HSA?
To qualify for an HSA, employees must meet the following requirements:
- Employees should be under age 65 and must be covered by high-deductible health plans.
- They should have no other health coverage and should not be enrolled in Medicare.
- Employees should not be claimed as a dependent on another individual’s 2015 tax returns.
Who would this NOT be right for?
According to the Mayo Clinic, “if you think you might need expensive medical care in the next year and would find it hard to meet a high deductible, an HSA might not be your best option.” Here are some additional considerations:
- For those individuals that suffer from chronic illnesses, it can be challenging to estimate healthcare costs.
- Older individuals may find it difficult to set aside money to put into their HSAs compared with younger, healthier employees.
- Pressure to keep funds in an HSA might prevent some individuals from seeking medical attention when it is necessary.
- If employees make withdrawals for non-medical expenses, they will have to pay taxes on the amount.
Benefits to Employers
Although individual employees can set up their own HSA through a bank or other financial institution, business owners can also offer an HSA option for their team. By offering HSA programs, employers:
- May save money on health insurance as the premiums for high deductible plans are typically lower.
- May be able to deduct their contributions to employees’ HSAs on their federal corporate income tax return.
- Can benefit from higher retention rates because they offer attractive health care plans for their employees.
HSAs offer a win-win for both employers and employees as they to work together to come up with cost-effective solutions in light of spiraling healthcare costs. Employers should identify an HSA provider that offers tools and resources that will benefit employees during their careers with your company and for years to come.
Please contact our team at Remote Quality Bookkeeping™ for assistance with your small business needs.