A Health Savings Account (HSA) is a type of savings bank account that allows you to set aside pre-tax income to use for qualified medical expenses. There are huge benefits for employees both from a tax perspective but also to help cover the cost of high deductibles within their medical plan.
But HSAs can even benefit companies who are seeking ways to offer attractive benefits to potential new employees. Here’s how HSAs can benefit both the employer and their employees.
Top Benefits of an HSA for Employers
The Bureau of Labor Statistics (BLS) reports that in 2020, U.S. employers paid 67% of medical premiums for their covered workers with an average annual contribution of $13,717. Ask any employer, and they will likely suggest that employee benefits have a huge impact on their bottom line. This makes having an HSA as part of the employer’s health insurance plan an attractive proposition. An HSA can cut health insurance premiums without sacrificing the quality of the coverage.
An HSA also helps employers by reducing the FICA taxes they pay. When an employee contributes to their HSA pre-tax, the employee and employer are not charged the FICA tax, which shaves 7.65% off the tax rate for the amount that is contributed.
Offering insurance with an HSA option is also an attractant for candidates seeking benefits as a perk to the job. Having poor or no benefits is one reason many employees decide to jump ship.
Top Benefits of an HSA for Employees
The BLS says 94% of all employees who participated in their employer’s medical plans in 2020 had to pay on average $6,797 toward a portion of their premiums. Given the high rate of their investment, most employees are searching for a way to cut health insurance costs. Pound for pound, an HSA is one of the best medical savings plans on the market today. There is the unmatched tax benefit, plus it is an excellent way for employees to ensure that they will always have enough in the bank to cover their out-of-pocket medical costs.
Another benefit of HSAs for employees is that these plans are often attached to a high deductible health plan (HDHP) that often have lower monthly premiums over traditional health plans. This means employees can save money each month on their health insurance.
There are no use-it-or-lose-it rules at the end of each year with an HSA. You can save up to the maximum amount each year, get the tax write off, and let it set in the bank for any qualified healthcare expenses that come up. You can even change the amount you contribute anytime you want (or as often as the employer allows).
Investopedia suggests, “This retirement savings vehicle just might be superior to the 401(k).” However, they cite a 2018 report that shows nowhere near the number of people enrolled in an HDHP also took advantage of the HSA. Yet even contractors or those that are self-employed can benefit from this form of savings as long as they have an HDHP. With that said, the tax rules, like anything governed by the IRS can be complicated.
FoxHire is Here to Help!
That’s one of the reasons employers often turn to an EOR like FoxHire to help them manage the many complexities inherent in the hiring, payroll, and benefits management process. We have experts standing by to help your organization make use of these benefits while also remaining compliant with the latest state and federal rules. Talk with our team about how we can help your business.