As business owner, you are tasked with deciding which benefits to offer your employees. This includes healthcare plans, which may or may not include Health Savings Accounts (HSAs). In the end, it’s up to you whether to include an HSA with your benefits package and doing so can provide a lot of benefits to both your business and its employees. Having said that, HSAs do come with some costs and drawbacks.
If you are considering adding an HSA to your business’s benefits package, read these pros and cons first.
The Basics of Health Savings Accounts
HSAs are tax-free accounts that can be used to pay for medical expenses. Employees of a business can automatically deduct a certain amount of money out of each paycheck that is contributed to the account (with a max of $3,550 for self-only and $7,100 for families in 2020). Employers can also choose to match the contribution of their employees into the account as an added benefit. Employees can pay for most medical expenses relating to themselves and anyone they can claim as a dependent. These funds do not expire and can roll over from year to year, which means employees can even use them as an investment vehicle.
Keep in mind that some companies charge custodial fees for HSA accounts.
The Pros of Offering an HSA
From a business standpoint, there are many benefits to offering an HSA to your employees:
- Tax savings: all money that is contributed to an HSA for your employees is not considered payroll and thus does not come with associated payroll taxes. This can reduce the overall tax burden on your company.
- There is also usually a federal tax deduction that can be taken by your business by offering an HSA.
- Since employees use their HSA to pay for their healthcare, this transfers the responsibility of doing so off your business.
- HSAs are popular among many employees and can be an added incentive for them to join your company.
- HSAs are easy to transfer should you switch benefits providers or plans.
The Cons of Offering an HSA
There are some challenges that businesses can face when offering an HSA to their employees. These can include:
- Plan limitations: employees can only enroll in an HSA if they are a part of a high deductible healthcare plan, which isn’t right for everyone.
- Compliance: it is important for employers and employees to know and understand the rules that apply to contributing to and using funds contained within an HAS. Failure to do so can result in audits from the IRS and other penalties.
- Saving: not all employees want to have money removed from their paycheck and choose to only pay for medical expenses as they come along.
- May not be deductible from state taxes: be sure to check with your state’s tax law to see if HSA contributions can be deducted from payroll taxes.
When it comes to your business, choose wisely. An HSA can either be a great offering for your employees or an unnecessary burden for your company.
Disclaimer: this is for informational purposes only and is not intended to be legal advice. If you need legal counsel, please contact an attorney directly.