Seize the Advantages
If you currently offer health insurance, by switching to an HDHP with a HSA, you may
- Save money. You may spend less on HDHP premiums than traditional insurance, immediately putting money in your pocket. Use the money to buy new equipment, grow your business, improve your employee benefits or whatever you want.
- Avoid taxes. Your contributions to your employees’ HSAs are tax deductible and may nudge you into a lower tax bracket, so you could save money on your whole tax bill, not just health care costs. Contributions by the employer are also not taxable to the employee (excluded from gross income) and are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax.
- Keep control. You decide how much to put into each employee’s HSA and when you make contributions.
- Cover more expenses. Employees can use their HSA to pay for health care that your traditional insurance might not cover, such as eye care, chiropractors and some types of therapy.
If you don’t currently offer company-wide health insurance, you can
- Offer to contribute to your employees’ HSAs without having to purchase a company-wide plan.
This choice still gives your employees the choice of their own provider and type of insurance, but allows you to offer a health insurance benefit to make your company more attractive to employees. You also only need to contribute to your employees that have a qualified plan.
Before you decide if switching your insurance or contributing to your employees’ HSAs is right for your company, be sure to consult with
- Your tax adviser
- Your accountant
- Your insurance provider
- Your employees
Frequently Asked Questions (FAQs) for Business Owners
What discrimination rules apply to HSAs?
If an employer makes HSA contributions, the employer must make available comparable contributions on behalf of all “comparable participating employees” (i.e. eligible employees with comparable coverage) during the same period.
For example, you could contribute $500 a year to part-time employees’ HSAs and $1000 a year to full-time employees’ HSAs. You could also contribute a certain percentage of the annual deductible to your employees’ HSAs. The rule can also be applied separately for employees with self-only versus family coverage.
Additional contributions to an employee’s HSA being made based on the employee’s seniority, length of service or giving catchup contributions to those employees 55 years and older violate the comparability rules.
Employers may contribute more to the HSAs of non-highly compensated individuals. For this purpose, the definition of “highly compensated employee” is based on the same definition used for qualified retirement plans.
Can an HSA be offered under a cafeteria plan?
Yes. Both an HSA and an HDHP may be offered as options under a cafeteria plan. Thus, an employee may elect to have amounts contributed as employer contributions to an HSA on a salary-reduction basis. Employee contributions to their HSA through a cafeteria plan can change on a month-by-month basis. However, the employer can put reasonable limits on how often those contribution amounts can change.
How can I contribute to my employees’ HSAs if I don’t provide health insurance for my employees?
For employers who do not provide their employees with health insurance but whose employee may purchase a Health Savings Account on their own, such employer may make pre-tax contributions to such employees’ HSAs through a Section 125 plan, as long as the offer is open to all such employees, and the contribution amount follows the Section 125 plan’s non-discrimination rule.
What reporting is required for an HSA?
Employer contributions to an HSA must be reported on the employee’s Form W-2.
The information provided in this page is not intended to be legal or tax advice. You should consult your attorney or tax advisor for information that relates to your specific circumstances.
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