HEALTH SAVINGS ACCOUNT FOR YOUR COMPANY
Due to increasing employee health care benefit costs, your business should consider creating Health Savings Account (HSA) for your employees. HSAs allow eligible employees or the business to save money for medical expenses in a tax-advantaged way. Tax advantages could be in the form of:
- HSA participant contributions are deductible within restrictions.
- Employer contributions aren’t taxed to employees.
- The savings and earnings are tax free,
Distributions from a HSA for qualified medical costs are tax free.
- If employees contribute to their HSA through their payroll deductions, employers don’t have to pay payroll taxes on those contributions.
If an employee is covered by a high deductible health plan, he or she is eligible for a HSA. The annual deductible for these plans has to be at least $1,350 for self-only or $2,700 for family coverage. There is a limit on deductible contributions for 2019. The limit is $3,500 for self-only coverage, and $7,000 for family coverage. Qualified individuals also cannot have annual out-of-pocket costs. Those are more than $6,750 for self-only or $13,500 for family coverage apart from premiums.
If the employee (and covered spouse, if applicable) turned 55 before the end of the tax year and is an eligible contributor. He or she can also make a “catch-up” contribution up to $1,000 for 2019.
Employer contributions towards a participant’s HSA is considered an employer-provided coverage for medical costs under an accident or health plan. Contributions made from an employer are excluded from a participant’s gross income as long as the contributions are within the deductible limit. The contributions can be accumulated over the years, so employees don’t need to worry about losing their contributions if they aren’t used in a certain amount of time. If the employer fails to make similar contributions to all participants’ HSAs for that calendar year, the employer will have a 35% tax on the total amount contributed for that time period.
Employees can use HSA distributions for qualified medical costs such as visiting the doctor, prescription medications, and premiums for long-term care insurance. The allowed expenses are usually costs that qualify for medical expense itemized deductions. If an amount is withdrawn for any other reason, it is taxable and an extra 20% will be taxed on the withdrawal unless the employee is over 65 or disability or death occur.
Although HSAs are a viable option for providing health care to your employees, it can be a complicated thing to sort out all the regulations. Contact us to see how to provide HSAs to your employees.