Tax-Free Savings for Healthcare Expenses
What is a Health Savings Account?
A health savings account (HSA) allows employees who are enrolled in a qualified high-deductible health plan (HDHP) to put aside money from their gross income into an individual, tax-exempt trust account. This money can be used to pay for routine medical, dental, and vision expenses or can be accumulated to provide savings for the future. In short, an HSA is a tax-free savings account for your healthcare expenses that rolls over from year to year.
HSAs not only serve as convenient accounts to use throughout the year to pay for eligible expenses but also provide significant tax advantages. In fact, HSAs provide “triple tax savings” by allowing participants to contribute to the account tax-free, distribute or withdraw money from the account tax-free (to pay for eligible expenses), and grow the account tax-free by investing HSA money in a selection of mutual and index funds (balance must exceed $2,000).
Health Savings Accounts Allow Employees To:
HSA funds roll over into subsequent years, so your employees’ plans continue to grow as they save money
Employees choose how they want to invest the funds
Employees are eligible to deduct contributions they make on their federal income tax return, even if they do not itemize deductions (note: California does not permit this deduction)
Interest and other earnings on an HSA maintained in accordance with federal law are not taxable on a federal return
Withdrawals for qualified medical expenses are federally tax-free
Employees will have the freedom to see any physician they choose
What are the Benefits of a Health Savings Account?
If employees are enrolled in an HSA-eligible HDHP, they may enroll in an HSA. Unlike an FSA, HSA is owned by its contributor and goes with them wherever they go, even if they leave their current job. HSA funds do not expire and continue to carry over each year — even into retirement!
Contributions to an HSA may be made by the employee, the employer, or both. Employees may contribute to their HSA either through pre-tax payroll deductions, in accordance with the rules set by the employer, or through personal contributions to the owners account, which are tax-deductible.
Each year, the IRS sets limits for how much can be contributed to an HSA. For 2018, the annual contribution limit for HSAs are as follows:
Individual Coverage: $3,450
Family Coverage: $6,850
Catch-Up Contribution (for HSA participants age 55+): $1,000
How Does a Health Savings Account Work?
Funds are available to be used as they are contributed to an HSA. Employees may use their HSA money to pay for eligible medical, dental, and vision expenses for themselves and their covered dependents. There are no network requirements for using HSA funds, so contributors may choose to see any provider they wish, as long as the expenses incurred at that provider are HSA-eligible.
Ready to Offer Health Savings Accounts to Your Organization?
Setting up an HSA for your staff is simple with Unicorn HRO. Our iCON platform offers automation and simplicity for you and your organization to access necessary information related to HR and benefits administration.
Learn how Unicorn HRO solutions help your organization today.