10 Ways to Simplify Employee Benefits: Strategy #2 – Health Savings Accounts

If you need a prescription for healthy savings, just memorize these three letters: HSA.

A Health Savings Account, or HSA, works in conjunction with a high-deductible health insurance plan. The money contributed to this account then becomes available to cover medical or other health-related expenses. Balances in this account roll over from year to year, so the employee can sock away quite a nest egg for medical contingencies.

People save with HSAs in a couple of different ways. For one, the higher deductible plan translates into a lower monthly premium. But the greatest benefit occurs through pre-tax savings. Currently, individuals can contribute up to $3,050 a year in HSA contributions, with families contributing up to $6,150. HSA contributions can be subtracted from taxable income.  That means up to $2,150 in tax savings for families with 25-35% combined payroll and income tax rate. Finally, when someone spends HSA funds on qualified health expenses for themselves or their dependents, it’s tax-free.

Self-employed businesspeople looking for every possible means of lowering their taxable income can benefit tremendously from this type of plan.

Employers and employees have even more ways to benefit from HSAs. In addition to lower premiums for high deductible health plans, employers also have an added employee benefit tool in the form of HSA contributions.  Employers enjoy the same tax advantage for contributing to employee HSAs as they do for 401k contributions.

Employers can allow employees to contribute to their own HSAs through payroll on a pre-tax basis.  When employees make such contributions through payroll, they lower their taxable income and save another 7.65% on FICA payroll tax.  Likewise, the employer saves 7.65% on FICA payroll tax when employees contribute to their HSAs this way.

If you like the idea of reporting a lower taxable payroll, then adding an HSA option to your company health plans is a great way to go.

For more cost saving strategies, sign up for our free webinar on May 12 from 10am – 11am here.