Advantages of an HSA for employers
One of the main advantages of an HSA is reducing your FICA and federal unemployment tax liability. You'll likely save on state taxes, too. Only Alabama, California, New Jersey, and Wisconsin don't recognize pre-tax contributions to the HSA at the state level. 1
Some other reasons to offer an HSA and HDHP to employees:
- Lower-cost plan – HDHPs typically have lower premiums than other plan types, so you can have more control over health benefits expenses.
- Contribution flexibility – You can contribute as much as you wish to employees' HSAs, tax-free, within IRS guidelines.
- Tax deductibility – You can deduct contributions to employees' HSAs.
- Ease of administration – Employees control their own accounts, so all you have to do is send employee payroll deductions to the account on behalf of the employee.
Advantages of an HSA for employees
The HSA and HDHP also offer several advantages for employees:
- Lower premiums – HDHPs usually cost less than other kinds of health plans.
- Save for now and the future – Employees decide how much to put in their HSAs and what they use the money for. Since unused funds carry over from year to year, employees have an incentive to use their funds wisely.
- Investment opportunity – Money in an HSA earns interest depending on the employee's account balance and investment decisions. The money market sweep account and mutual fund options are not available in all HSA products offered.
- Tax savings – HSA contributions don't count toward the employee's taxable income, so they can make their healthcare dollars go further.
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Beginning Jan. 1, 2011, over-the-counter medications such as pain relievers, cough syrup, and allergy medicines will require a prescription to be eligible for reimbursement from an FSA or PCA. The HumanaAccess Card may not be able to be used to purchase OTC medications.
1 - Humana does not offer tax advice. Consult your tax advisor for details on HSA deductibility. FSA, PCA, and HSA spending accounts are not insured benefits; they are a service administered by Humana Insurance Company.