The Health Savings Account (HSA) has been around for nearly 20 years (debuted in December 2003) and is growing in popularity. Assets are currently held in over 33 million accounts. over $100 billion. The number of HSA is projected to grow by: 43 million by the end of 2025. Many companies have embraced HSA as their only medical option, or one of their employees’ choices. For small businesses, HSA is a good way to ensure employee health coverage without wasting your budget. While you have plenty of time to get your company health-ready for 2024, it’s never too early to start thinking about it.
To contribute to HSA, employees must be on a High Deductible Health Plan (HDHP) and cannot be enrolled in Medicare. HDHP, as the name suggests, covers certain non-preventive care costs after you’ve met your deductible, so your premiums are much lower than traditional group health plans. From a tax perspective, HDHP is health insurance with minimum annual deductibles and maximum out-of-pocket limits. The following graph shows his 2023 parameters and his 2024 parameters so you can start planning now.
|Compensation type||Minimum Annual Deduction||Maximum copayment amount|
There is a limit to how much you can donate to HSA each year. The cap for 2023 is $3,850 for him for personal coverage and $7,750 for family coverage. In 2024, the cap will increase to $4,150 for him for personal coverage and $8,300 for him for family coverage. If the employee is over the age of 55, he is allowed an additional $1,000. However, the spouse must have separate her HSAs for both in order to make the additional contribution.
Employees process their own HSA. Employers are not responsible for them. This means that it is up to employees to decide if, when and for what they receive dividends. Eligible medical expenses are tax exempt. For non-eligible expenses, the owner is subject to a 20% fine unless she is 65 or older.
HSA Processing for Staff
The law is very flexible when it comes to dealing with HSA. Are there some ways to do that?
- The employer provides HDHP but does not contribute anything to the employee’s HSA. They donate what they want and claim the tax credit on their personal federal income tax returns, whether or not they itemize other deductions.
- Employers provide HDHP and partially contribute to the employee’s HSA. According to sources, in 2022, The average employer contribution was $869 per employee. Employer contributions must be made on a non-discriminatory basis. Employers deduct contributions. Employees are not taxed and there is no payroll tax on donations.
- Employers provide HDHP and contribute in full up to the annual limit (explained above). This can be useful for small family businesses if you can afford to fund the company. One estimate I saw years ago (I can’t find the source now) said that doing this could cut costs by 40% over paying for traditional group health insurance. .
- Employers do not have HDHP, but do contribute to HSA if the employee is eligible. This means it will be covered by her HDHP through another source. This is any plan through government marketplaces that meets his definition of HDHP above (plans vary by state or by federal exchange).Employer contribution HSA not reported on employee W-2.
Bill pending to improve HSA
Due to the popularity of HSA and its potential benefits in facilitating medical savings, various proposals have been made in Congress to expand the use of HSA. Two recent proposals worth noting:
- Health Savings Act 2023 (1158) extends HSA in several ways. If enacted, both spouses over the age of 55 would be able to make additional contributions to the same account (currently each spouse must hold a separate HSA). You will also be able to use HSA funds to purchase insurance, pay for nutritional supplements, fitness facility memberships, and exercise equipment (expenses not currently considered “qualified medical expenses”:) . And the tax-deductible contribution limit will be increased to match the HSA-covered health insurance co-payment limit, effectively doubling the amount of deductible contributions.
- Please stop punishing the Working Elderly Act (H.R.2769) authorizes contributions for Medicare-eligible individuals age 65 and older if eligibility for Medicare benefits is limited to hospital benefits under Medicare Part A.
In the coming months, we will decide whether to offer HSA and how much we will contribute. Monitor Congressional developments and be aware of changes in HSA regulations. Discuss all of this with your CPA or other advisor and take costs into account when creating your 2024 budget. For more information on HSA, see: IRS Publication 969 (Does not include amounts for 2023 or 2024).