A Health Savings Account (HSA) is a great way for employees to reduce their taxable income and save on medical expenses. It is a tax-advantaged checking/savings account that can be used to pay for qualified medical, dental, and vision expenses. An employee and/or their employer can contribute to the account as long as they are enrolled in a qualified high-deductible health insurance plan. (QHDHP)
Benefits of Health Savings Accounts
Combining tax benefit savings with lower insurance premiums, HSA plans have advantages for both employers and employees.
HSAs are offered in conjunction with high-deductible health plans, which can save employers and employees money on their health insurance premiums. Employer contributions to employee HSAs may be deductible on federal corporate income tax returns for the year in which they were made. HSAs enhance an employee benefits package, which can help employers attract and retain the best workers.
Employees have the benefit of tax-free withdrawals from their HSA accounts to cover qualified medical, dental, and vision expenses. They can make pre-tax payroll contributions to their HSA account. As funds accumulate, the account can provide tax-advantaged savings for the employee’s medical needs in the future too. There is no “use it or lose it” policy as with flexible spending accounts. Employees can continue to build their accounts while earning interest year after year, tax-free, on their HSA fund balance.
The money in a Health Savings Account belongs to the employee. Whether they change jobs, switch to a different health plan, or retire; employees can continue to use their HSA accounts for tax-deferred savings or to pay for qualified medical expenses.