An HSA is a tax-advantaged savings account that is used in combination with a High Deductible Health Plan (HDHP) and gives your employees a new way to manage healthcare costs. They can used the HAS funds to cover qualified medical expenses – from co-payments at the doctor’s office to pharmacy bills, dental care, vision care, and more.
How HSAs Work
With the HSA, any earnings on your contributions are tax-advantaged. Meaning, earnings on your HSA dollars are not subject to taxation. The HSA account is funded by pre-tax contributions by the employee. Employers and other third parties also can contribute to the account. The employee determines the amount of money that is withheld each paycheck before payroll taxes are deducted. This gives employees more take-home pay, while you, their employer, pay less in FICA and FUTA payroll taxes.
If the employee doesn’t have enough money in their HSA to cover a medical expense, they can make a partial payment and pay the difference using another method. There is no “use it or lose it” condition. Any unused funds remain in the account and continue to accrue interest until used.
More information on HSA plans can be found on the U.S. Department of Treasury website at www.treas.gov. (Hint: search on HSA).