A Health Savings Account (HSA) is a tax-advantaged account designed to pay for medical expenses now and save for the future. It’s a perfect compliment to any high deductible health plan and empowers accountholders to take control of their health.
Why offer a Health Savings Account?
A Health Savings Account, or HSA, is a unique, tax-advantaged account that your employees can use to pay for current or future healthcare expenses.
When you offer an HSA, you’re really offering tax savings, investment opportunities, and a retirement savings option. HSA accountholders can use their funds now on qualified healthcare expenses or save for their future through self-directed investment options. Plus, funds in an HSA roll over from year to year and earns interest tax-free*.
As an employer, you’re always looking for ways to increase recruitment and retention. With an HSA, you are demonstrating the value you place on your employees’ health and future.
*Earnings are exempt from federal taxes. Most states do not tax HSA earnings. However, state tax treatment varies. Please consult with a tax advisor or the state department of revenue for more information.
Triple tax advantage
Health savings accounts offer a three-pronged tax benefit:
Contributions made via payroll deduction are tax-free which effectively lowers taxable income.
HSA funds are eligible for investment and enjoy tax-free growth potential.
When HSA funds are used for qualified, eligible healthcare expenses, taxes don’t apply.
FICA tax savings
With an HSA, employers enjoy tax savings, too.
HSAs are widely known for the tax advantages leveraged by the employee but what’s in it for the employer? The answer: more tax savings! While employees are happily enjoying the tax advantage hat trick, employers will see lower payroll taxes and substantial FICA savings.
Employers don’t pay FICA taxes on employees’ HSA pre-tax payroll contributions resulting in a 7.65% savings. And for every pre-tax dollar contributed to an HSA, that tax savings grows. Some employers may consider making contributions to their employees’ HSAs. Employer HSA contributions are also tax-deductible as a business expense, so you benefit on the frontend and on the backend.
Simply put, the more employees who have HSAs and make HSA contributions, the lower your payroll taxes and the greater your income and FICA tax savings.
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Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA) are similar in a lot of ways. But the HSA stands out from the crowd with its unique ability to provide triple tax savings as well as tax advantages for the employer.
Let’s take a closer look at how an HSA is different from a FSA.
| HSA | FSA |
|---|---|
| Paired exclusively with a high deductible health plan (HDHP) | Can be paired with any health insurance plan |
| Account funds can be contributed by both the employer and the employee (up to the limit set by the IRS). Bonus: Funds contributed via payroll deduction provide tax savings for you as the employer! | Funds are contributed by the employee only |
| Owned by the employee – the account travels with the employee even if through retirement or a change in employment | Owned by the employer – this account is employer-sponsored meaning enrollment is contingent upon employment |
| Funds roll over year to year and belong to the accountholder no matter what | FSA funds are subject to the “use it or lose it” rule and participation in the account is terminated upon a change in employment status |
| Funds are available for use as they are contributed | Total annual contribution is available for use on day 1 of the plan year |
| HSA funds are used for qualified, eligible healthcare expenses. Bonus: distributions used on eligible expenses are not subject to tax! | No opportunity for investments |
| Funds can be invested (an ROI for the participant). Bonus: investment growth is tax free! | Tax advantages – contributions and distributions for eligible expenses are tax free |
HSA Bank is your partner dedicated to account services and solutions.
As one of the first and largest HSA providers in the country, we are passionate about HSAs. We have built our reputation of world-class service and expertise through our focus on Health Savings Accounts.
HSA Bank has been a leader in health accounts for over two decades offering employees, employers, partners, and advisors innovative products and resources that drive down healthcare costs, encourage engagement, and assist with decision-making. We are committed to helping accountholders spend smartly on their healthcare now and save for the future.
HSA Bank takes privacy and protection seriously. We work hard to keep your data safe and secure with fraud monitoring and in compliance with privacy rules. We effectively partner with brokers, administrators, and payroll vendors taking that item off your to do list and enhancing the employee experience. Your employees will have access to 24/7 support from hundreds of representatives available via phone, email, and mobile app as well as a library of resources and tools helping them manage their account any time, any place.
