A Health Savings Account, or HSA, is a tax-exempt trust or custodial account your employees can set up with a qualified HSA trustee to pay or reimburse themselves for qualified medical expenses on a tax-free basis. Various programs, such as HSAs, are designed to give individuals tax advantages to offset health care costs.
Several benefits of having an HSA:
- An employee can claim a tax deduction for contributions the employee or someone other than the employer makes to the HSA, even if the employee does not itemize deductions on Form 1040.
- Contributions to an HSA made by the employer (including contributions made through a cafeteria plan) may be excluded from an employee’s gross income.
- Contributions remain in the employee’s account from year to year until they are used.
- Interest or other earnings on account assets are tax free.
- Distributions may be tax free if the employee paid qualified medical expenses.
- An HSA is “portable,” so it stays with an employee if he or she changes employers or leaves the workforce.
To be an eligible individual and qualify for an HSA, an employee must meet the following requirements:
- Must be covered under a high-deductible health plan (HDHP) on the first day of the month.
- Must have no other health coverage, except for what is permitted under other health coverage.
- Is not enrolled in Medicare.
- Cannot be claimed as a dependent on someone else’s tax return.
Key features of an HSA for 2017 can be found here.
Source: HR 360, Inc.
