Reasons to choose a health savings account for your employees.

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The number of companies offering their employees a Health Savings Account (HSA) continues to grow. With plenty of advantages for both employers and employees, implementing an HSA – if your company doesn’t already have one – can be a great idea.

An HSA is a personal health care account that works with a qualified health plan. There are tax advantages for both the company and its employees, and typically both will save money on monthly health insurance costs as well.

One area where your company can save is federal income tax. You can take a federal deduction for any contributions you make to your employees’ HSAs. This is a win-win for both employer and employee, since the contributions you make on their behalf help make an HSA an attractive benefit in the eyes of your employees. In fact, offering an HSA as part of your benefits package can help your company attract desirable new talent and keep the valued employees you already have.

Why do employees like HSAs? Let’s start with the tax savings. There are actually three areas where an HSA offers tax benefits for employees. First, employee contributions are typically exempt from federal and state taxes in most states. Second, the earnings in an HSA – including interest, dividends and capital growth – will grow tax-free. Third, any withdrawals an employee makes from an HSA to pay for qualified medical expenses are also tax-free.

HSAs can also be rolled over from one year to the next, and the nest egg of money that grows in the account can be used for retirement. That’s why it can be a good idea for employees to max out their HSA contributions if at all possible. With the future of Social Security uncertain, and the market conditions that affect 401(k) plans equally unpredictable, the funds in an HSA can be a great supplement to a retirement plan. Talk to your tax advisor to see if this works with your retirement goals.

Additionally, withdrawals made for qualified medical expenses after retirement remain tax-free, and may be used to pay for a few things many employees aren’t aware of, including premiums for Medicare parts A, B and D, long-term care, dental care and a number of other healthcare expenses.

If you have questions or would like more information about including a Health Savings Account benefit for your employees, please don’t hesitate to contact a member of our Business Banking team today.