As a small business owner, you may have considered offering your employees health savings account (HSA) as part of your benefits package. In this post, we’ll explore this topic a little deeper, and outline some important reasons why it can benefit you and your employees.
An HSA is a savings account owned by your employee for the purposes of helping them save money for qualified, out-of-pocket medical expenses like doctor visits, dental care, prescriptions and the like, tax-free. If administered correctly, they can be a big win for both you and your employees. Let’s break it down by group.
Benefits to you, the employer
1. Lower payroll taxes
The first benefit of an HSA to an employer is the tax savings. Neither you nor the employee are required to pay payroll taxes on HSA contributions deducted through payroll. Right out of the gate, you get a federal income tax deduction for any contributions you make into your employee’s HSA accounts, and for the amounts they contribute via payroll deduction.
2. Increased employee satisfaction
Employee satisfaction may be more difficult to quantify, but usually involves weighing the cost of hiring versus the cost of keeping an employee. If you are able to empower your employees with the ability to save on their tax bill and give them more buying power, while simultaneously providing the means for building a retirement savings nest egg, you’ve made a compelling case for that employee to stay with you for the long term.
3. Lower health benefits costs
HSAs have to be paired with an HSA-qualified health plan. These plans have minimum deductibles that tend to be higher than most traditional health plans, but the premium rates are usually lower because of that. Employers can use any premium cost savings to fund employer HSA contributions and make the plan more attractive at their own discretion.
Benefits to your employees
4. Lower taxable income
As discussed previously, employees can reduce their taxes by contributing to an HSA. Your employees can use this tax-free money to pay for their qualified medical expenses. If you allow payroll deductions for the HSA on a pre-tax basis, they get access to the full dollar saved for every dollar contributed.
5. Long-term savings option with increased compound earning potential
Earnings on invested HSA contributions are tax-free. This means the HSA works like a medical IRA or 401(k), but unlike those accounts, the funds are never taxed as long as they are used for qualified medical expenses. This means the HSA is a compelling option for employees to consider in their long-term retirement planning.
By offering your employees an HSA, you can provide a meaningful opportunity for them and for your business. The amazing tax benefits for both you and your employees, and given the fact that it is so easy to set up, instead of asking whether or not to offer an HSA you might want to start looking at what the right HSA service provider can do for you.
Nothing in this communication is intended as legal, tax, financial or medical advice. Always consult a professional when making life changing decisions.