Could your business use a Health Savings Account?
Are you looking for a way to control health insurance costs? Perhaps you'd like
to offer health coverage to your employees, but can't afford it? If so, look into
Health Savings Accounts (HSAs).
With an HSA, you can offer your employees tax advantages and greater control over
their health care spending. At the same time, you may be able to reduce benefit
costs, offer a better benefit package, or both.
An HSA arrangement has two elements — a high-deductible medical insurance plan
and an IRA-like employee savings account.
The high-deductible plan
As owner, you enroll your employees in a high-deductible health insurance plan.
It's similar to a regular health plan, except that the deductible must be at
least $1,000 for single participants or $2,000 for a family. This coverage
protects your employees against major illnesses or accidents, but leaves them to
pay for many routine medical costs. Because the deductible is high, the monthly
premiums are lower than for a normal plan.
The savings account
Your employees set up individual health savings accounts, which they can fund by
making tax-deductible contributions. Your business can also choose to make
contributions to the employee accounts. Your employees use the account to pay for
medical expenses not covered by the plan. They don't owe tax on money they
withdraw provided they use it for a wide range of qualified medical expenses.
Balances in their account are invested and grow tax-free, just like an IRA. Any
money not used in one year can be carried over to the next.
In effect, your employees can pay for their routine medical expenses with pre-tax
dollars. Because unused funds stay in the account, they have an incentive to
spend wisely and grow their accounts.
Your business will enjoy savings from the lower monthly health insurance
premiums. You can choose to contribute some of the savings back to the employee
accounts, or use them to reduce your employee benefit costs.
There are a number of rules and dollar limits on HSAs. If you think an HSA might
work for you, please contact our office and we'll provide more details.
If you have questions on this or other tax topics, send them to:
ron@thetaxdoctor.us or call 1-888-901-7339