Health Savings Account (HSA) Solutions for Employers
Augment your employees’ high-deductible health plan (HDHP) with a health savings account (HSA) —healthcare savings that offers a triple tax advantage for employees and has tax advantages for employers as well.
What Is a Health Savings Account?
An HSA pairs with a qualified HDHP and helps employees save on taxes by setting aside tax-advantaged funds to pay for copays, deductibles, and other qualified medical expenses. HSA health plan funds can help your staff supplement retirement savings while also minimizing out-of-pocket medical expenses.
Why Is Paychex a Leading HSA Solution?
Seamless Integration With Payroll
Our HSA contribution arrangement integrates with Paychex payroll, helping you control costs and simplify administration by automating data entry.
HSA Help Every Step of the Way
We’re available to help you communicate health savings account benefits and enrollment with your staff, initiate payroll deductions, and simplify employee health spending accounts through our Paychex Flex® Benefits platform.
Self-Service Capabilities To Empower Employees
Paychex Flex, our fully integrated technology, allows employees to initiate a variety of HSA activities themselves, such as accessing health and benefits information, viewing health plan information, and reviewing HSA account activity.
Support When You Need It Most
Call our toll-free support line and a benefits specialist can help answer questions and provide guidance when you need it.
How Does an HSA Work for Employers?
The first thing to know about how an HSA works for employers and how to set up an HSA for employees is that you must first offer a qualified HDHP. HDHP participants may contribute money via payroll deduction into the health savings account. Withdrawals from HSA funds can be used to pay for qualified current and future healthcare items not covered by the HDHP. You as an employer can also contribute to the HSA plan, which can help you save on FICA taxes through tax-deductible contributions. These contributions will need to be reported on employees’ Form W-2.
Benefits of HSAs for Employers
Increased Employee Engagement
As employees continue to contend with rising healthcare costs, HSAs add additional value to an HDHP, a benefit that will help staff feel appreciated and engaged.
Payroll Tax Savings
Employers save on payroll taxes for the contributions that employees make to an HSA. Further, when employers contribute to an HSA on their employees' behalf, these contributions are tax-deductible.
Enhanced Benefits Offerings
Given the generally lower cost of HDHPs vs. other traditional healthcare plans, an affordable healthcare plan paired with an HSA can be a key differentiator as you look to recruit and retain high-quality employees.
Reduce Annual Premium Hikes
As employees take advantage of an HSA and increasingly take ownership over their healthcare, you may see a reduction in annual health premiums.
How Does an HSA Work for Employees?
For employees covered under an HDHP, their designated contribution is deducted from each paycheck on a pre-tax basis and deposited to the HSA. When they have an eligible medical expense, they can use their HSA to pay for it. Employees who are younger than age 65 will be taxed on the distribution and also incur a 20% penalty if they withdraw money from an HSA plan for non-medical costs.
Benefits of HSAs for Employees
Lower Monthly Health Insurance Premiums
HDHPs often have lower monthly premiums than traditional health plans, allowing employees to save money each month on health insurance costs.
Triple Tax Advantage
Employees can make pretax payroll contributions and tax-free distributions for qualified medical expenses, plus earnings grow tax-free.
Rollovers and Portability
Any funds contributed into an employee health spending account is the employee’s to keep, so they don’t have to worry about spending all their funds in a given year. Employees also keep what they save and earn, even when they change jobs.
Tax-Free Savings for Retirement Healthcare Costs
Employees can invest HSA funds and let them grow over the long-term to cover medical expenses in retirement.
HSA Frequently Asked Questions
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Who Owns a Health Savings Account?
Who Owns a Health Savings Account?
An individual employee owns an HSA, even after that person resigns, retires, or is terminated. The account, including contributed funds and earnings, belongs to them.
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What Expenses Are Covered by an HSA?
What Expenses Are Covered by an HSA?
Qualified medical expenses covered by an HSA include most medical care, including dental, vision, and IRS-eligible over-the-counter drugs. Some qualified expenses include:
- Office visit copays
- Health insurance deductibles
- Dental expenses (tooth extraction, fillings, etc.)
- Vision care (eye exams and eyeglasses)
- Prescription drugs and insulin
- Medicare premiums
- A portion of the premiums for tax-qualified, long-term care insurance policy
- Hearing aids
- Imaging (X-rays, MRIs)
- Wheelchairs, walkers, and crutches
A detailed list of HSA-covered medical and dental expenses can be found on the IRS Publication 502.
Paychex partners with the HSA Store, which also provides an expansive list of items that are HSA-eligible, while also offering a means for employees to use their funds.
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What Are the 2023 HSA Contribution Limits?
What Are the 2023 HSA Contribution Limits?
The IRS announced the 2023 Health Savings Account (HSA) limits via Revenue Procedure 2022-24. The annual contribution limit for self-only coverage increases $200 to $3,850, and family coverage increases by $450 to $7,750. Also included are updates to the minimum deductible and maximum out-of-pocket expense amounts that a high-deductible health insurance plan (HDHP) must meet to qualify to pair with an HSA. For self only coverage, the minimum deductible increases to $1,500 with maximum out-of-pocket expenses increasing to $7,500. For family coverage, the minimum deductible increases to $3,000 with the maximum out-of-pocket expenses increasing to $15,000.
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Can You Take Money Out of Your HSA Account?
Can You Take Money Out of Your HSA Account?
When it comes to distributions of an HSA, health plan account holders, their spouse, and dependents can take out funds in their health spending account tax and penalty-free at any time for eligible medical expenses that aren't covered by an HDHP. Depending on the HSA plan, participants can use an issued debit card or reimburse themselves. Taking money out of an HSA account to pay for items that aren’t qualified medical expenses will incur taxes and an additional IRS penalty if employees are younger than age 65. Individuals over age 65 can take out and spend HSA funds for any expense without penalty. However, the withdrawal must be reported as part of the individual’s gross annual income.
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Who Is Eligible for an HSA?
Who Is Eligible for an HSA?
For an employee, health savings account eligibility requires that they be covered under a HDHP, not enrolled in Medicare, and cannot be claimed as a dependent on someone else's tax return.
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Are There HSA Pros and Cons?
Are There HSA Pros and Cons?
HSAs are a great way to help your employees boost their health savings this year and keep your business competitive in today’s labor market. But as with any benefit, there are pros and cons of HSA plans. Consider all of your options, including comparing HSAs, HRAs, and FSAs and how each plan can uniquely help you attract employees, reduce your tax bill, and control healthcare costs.