What is an Employer HSA Contribution?

HSA stands for Health Savings Account. An HSA is a unique type of bank account for an individual employee’s healthcare costs. Think of an HSA as an account that provides a safety net for all the healthcare expenses your health plan doesn’t cover, such as deductibles, prescriptions, COBRA services, long-term care, vision and dental expenses.

Your employees can add money to their HSA through pre-tax payroll deduction, as well as through separate deposits. As the amount in the account increases and gains interest, employees can either continue to let the account grow or deduct money for qualifying healthcare expenses.

What Does it Mean to Contribute to an HSA?

So exactly what is an employer HSA contribution? Contributing to employees’ HSAs is a monetary benefit that many companies include as part of their employee compensation packages. HSAs are a way for an organization to assist employees in financing their healthcare. Through HSA contributions, your company can give tax-free money to your employees.

Organizations use the benefit of HSA contributions as a complement to their health insurance coverage offerings or health plans. HSAs typically accompany HDHPs (High Deductible Health Plans). An HSA-compatible HDHP (High Deductible Health Plan) will generally carry a lower monthly premium than many low-deductible health plans. As previously mentioned, employees can use money from their HSAs toward the cost of deductibles. Further, the lower premiums associated with an HDHP/HSA pairing can be better for your company’s bottom line.

How Do I Make an Employer HSA Contribution?

As an employer, you decide whether or not to contribute to employee HSAs. Employer contributions are entirely optional. If your organization chooses, you can contribute to employees’ HSAs periodically, i.e. quarterly, biannually, or by pay period. You may also elect to contribute via one lump sum at the beginning of each year. Of course, you’re free to go with some combination of the two approaches, as well. If your organization is making lump sums at the beginning of the year, it’s important to keep in mind that employees own their HSA accounts. Employees can keep all money in their HSA accounts if they leave their job and switch companies.

HSA employer contributions can be accomplished either with or without an IRS Section 125 plan. An IRS Section 125 plan is often referred to as a Section 125 “cafeteria” plan, because it allows employees to select from a multitude of benefits, or decline a particular benefit entirely.  If your HSA contributions are made with a IRS Section 125 plan, the IRS permits your organization to participate in employee HSA contribution matching.

What are the HSA Employer Contribution Limits?

Employer contributions to an HSA may be made on a pre-tax basis and are subject to annual limits set by the IRS. The 2021 maximum allowed contribution is $3,600 annually for single employees and $7,200 annually for families (employees with dependents). These limits have grown $50 for singles and $100 for families since 2020. Employees aged fifty-five and above are permitted to make an additional $1,000 contribution on top of the previously noted IRS limits. It’s important to know that these monetary contribution limits apply to the aggregate or combined amount deposited by both the employee themself and your organization.

What is the Difference Between an HSA and an FSA?

Even if the employee changes jobs, they retain their HSA and the money in it. In brief, a Health Savings Account is similar to an FSA, or Flexible Spending Account, with a key difference: an FSA account, and the money in it, is owned by the employer. An HSA, on the other hand, is owned by the employee and they can take it if they go. They cannot be prorated if a lump sum was contributed by the employer at the beginning of the year.

Should I Provide HSAs for my Employees?

As with anything, employer contributions to employee HSAs have their benefits and drawbacks. Employer HSA contributions can help your company save money, since your payroll taxes will be reduced. This in turn can lower your FICA, FUTA, SUTA, and Workers’ Compensation rates.  

Setting up, organizing, and overseeing HSAs can be challenging for even the most experienced Benefits Coordinator or HR Professional to get right. Compliance is critical for all health plan items, and HSAs are no exception.

Do you need assistance or advice in determining whether HSAs are right for your organization?

The benefit experts at Benely have extensive experience in the health insurance industry. Give your employees access to industry-leading experts ready to guide them through their health plan choices. If you’d like to explore the idea of introducing your employees to an HSA, contact Benely to learn more.