Recently, we have been receiving numerous questions and concerns about the rising costs of health care and the impact it has on small business owners. Did you know there is a new tool available to small business owners designed to reduce health insurance costs for both employers and employees? The tool is the Health Savings Account, and it may be of benefit to you.
Here is a brief explanation and while there are several insurance terms here, we hope you're able to find a way to save your company money. The HSA has 2 components: a high deductible health insurance plan and an individual tax-exempt trust.
The High Deductible Health Insurance plan is straight forward. A qualified HDHP is a health plan that has certain requirements for individual coverage and for family coverage.
The trust account is designed to pay for routine medical expenses/and or provide savings for the future. Money put into the account can be used either during the year or accumulated in the account. Allowable medical expenses are defined by the IRS. There are several benefits with an HSA:
One of the most alluring aspects of an HSA account is that it can be used for health and medical expenses by employees, tax free.
Contributions "roll over" from year to year so if an employee doesn't use the money one year they can use it the following year.
Contributions are not included in the taxable income, making them completely tax free. Be aware that there are limits on how much an individual or a family can contribute each year.
The HSA is "owned" by the employee. If they leave they can take their HSA with them.
For employers the greatest asset is that contributions on the part of employers are also tax exempt and not considered within payroll taxes. HSA plans are not available to all employers and are best suited for small business owners.