Updated January 7, 2020
A Health Savings Account (HSA) is a financial account used with a qualifying high-deductible health plan (HDHP) that allows employees to pay for health care expenses on a pre-tax basis.
It takes a few steps to set up an HSA for the employees of your small business. First, decide on the HSA contribution amounts for employees with qualified HDHPs. Next, create a Section 125 plan that enables employees to contribute tax-free dollars to the HSA. Employers and employees then send their contributions to the HSA custodian (typically a bank), and the business prepares the appropriate tax documentation for the end of the tax year.
A Health Savings Account (HSA) is a tax-favored savings account that, when paired with a high-deductible health plan (HDHP), can be used to help your employees pay for qualifying medical expenses. An HSA-compatible HDHP typically has lower monthly premiums than lower-deductible health insurance plans, and contributions to an HSA may be made on a pre-tax basis, up to annual IRS limits.
Both employers and employees can contribute to an HSA, and there are several benefits of using an HSA for each group.
It is important to know that not all HDHPs are HSA-eligible, so be sure to select an HSA that works for the needs of your small business.
Overall, an HSA may be an affordable, tax-favorable option to consider for both small business owners and their employees.
HSAs have become more common in recent years. A Society for Human Resource Management (SHRM) report on employee benefits in 2019 found that interest in HSAs and employer contributions to HSAs has grown since 2015
According to eHealth’s 2018 small business health insurance report, few employers offering HSA-eligible plans fund them, with 21 percent of small employers saying they offer an HSA-eligible health insurance plan to their employees. Of these employers, 16 percent contribute money to their employee’s HSAs.
Setting up an HSA for your small business employees is a straightforward process. Here is an overview of the required steps.
Keep in mind that both employees and employers must adhere to annual HSA contribution limits. In 2020, individual HSA holders are allowed to contribute a maximum of $3,550, and HSA account holders with a family can contribute a maximum of $7,100, according to the IRS.
Overall, offering an HSA can be an affordable way to supplement the health insurance plans of your employees while also providing tax advantages for your business.
eHealth makes it easy to find HSA-compatible health insurance coverage for your business by allowing you to clearly identify and compare different group plans. Learn more about your options for small business health insurance by visiting eHealth.com or speaking with our licensed health insurance agents.
This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.