Overview: Health Savings Accounts (HSAs) offer a convenient, tax advantaged way for individuals to save money to pay for health care expenses. While they function like a personal savings account, the money in an HSA should only be used for health care expenses. Individuals that withdraw funds from an HSA for nonmedical expenses have to pay taxes on the money. Individuals under age 65 will also be subject to a 10 percent penalty for nonmedical withdrawals.
To be eligible for an HSA, an employee must participate in a high deductible health plan (HDHP). As the name indicates, an HDHP is a plan that has a higher deductible than typical health plans. Premiums paid for an HDHP are generally lower than premiums for traditional insurance plans. In many cases, preventive care is covered without a deductible.
HSAs can be funded by both employee and employer contributions. Contributions are subject to annual limits which are indexed for inflation and adjusted each year. The account is owned and controlled by the employee. Unspent money can be rolled over each year and employees can take the money with them if they change jobs.
Trends: As health care costs continue to rise, many individuals are using HSAs not only for current medical expenses, but as an investment for future health care costs.
Tracy Morley, SPHR, Legal Editor
The Taxation of Employee Benefits section of XpertHR's Payroll chapter has been updated to include the 2014 inflation-adjusted health savings account contribution limitations as determined under § 223 of the Internal Revenue Code.
The Internal Revenue Service has released the calendar year 2014 inflation-adjusted amounts for health savings accounts (HSAs) as determined under § 223 of the Internal Revenue Code.
Employee benefits, such as health insurance, sick pay, disability pay, workers' compensation insurance and retirement savings plans, may be subject to withholding for federal income taxes (FIT), Social Security and Medicare (FICA) taxes or federal unemployment (FUTA) taxes. This section assists HR professionals in understanding how each particular type of benefit plan must be structured and how to properly tax and report contributions, reimbursements and distributions in order to ensure compliance with the Internal Revenue Code.
As mandated by the Internal Revenue Service, every employer that is organized as a corporation that transfers stock to any person upon the exercise of an incentive stock option must file Form 3921, Exercise of an Incentive Stock Option Under Section 422(b), on an annual basis.
As mandated by the Internal Revenue Service, every trustee or custodian of health savings accounts, Archer medical savings accounts (MSAs), or Medicare Advantage MSAs must file Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, on an annual basis.
Employer-sponsored health care benefits are an important part of the overall compensation package used to attract and retain employees. Employers, however, face a number of issues when deciding on employee health care benefits. This section assists HR professionals in understanding the different types of benefit plans (e.g., traditional indemnity, managed care), the benefits that may be offered (e.g., prescription drug, dental, vision), how cafeteria plans work and the impact of the Patient Protection and Affordable Care Act (PPACA).
Soaring health care costs are a top concern for US employers. This section assists HR professionals in choosing strategies to reduce health care costs, including shifting benefit costs to employees, implementing disease management programs and wellness initiatives, and conducting dependent eligibility verification audits.
Employment glossary definition of HSA (Health Savings Account).
HR guidance regarding the benefits of offering employee Health Savings Accounts (HSAs).
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