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Small business owners are well aware of the increasing cost of employee health care benefits. As a result, your business may be interested in providing some of these benefits through an employer-sponsored Health Savings Account (HSA). Or perhaps you already have an HSA. It\u2019s a good time to review how these accounts work since the IRS recently announced the relevant inflation-adjusted amounts for 2021.<\/p>\n
The basics of HSAs<\/strong><\/p>\n For eligible individuals, HSAs offer a tax-advantaged way to set aside funds (or have their employers do so) to meet future medical needs. Here are the key tax benefits:<\/p>\n Key 2020 and 2021 amounts<\/strong><\/p>\n To be eligible for an HSA, an individual must be covered by a \u201chigh deductible health plan.\u201d For 2020, a \u201chigh deductible health plan\u201d is one with an annual deductible of at least $1,400 for self-only coverage, or at least $2,800 for family coverage. For 2021, these amounts are staying the same.<\/p>\n For self-only coverage, the 2020 limit on deductible contributions is $3,550. For family coverage, the 2020 limit on deductible contributions is $7,100. For 2021, these amounts are increasing to $3,600 and $7,200, respectively. Additionally, for 2020, annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits cannot exceed $6,900 for self-only coverage or $13,800 for family coverage. For 2021, these amounts are increasing to $7,000 and $14,000.<\/p>\n An individual (and the individual\u2019s covered spouse, as well) who has reached age 55 before the close of the tax year (and is an eligible HSA contributor) may make additional \u201ccatch-up\u201d contributions for 2020 and 2021 of up to $1,000.<\/p>\n Contributing on an employee\u2019s behalf<\/strong><\/p>\n If an employer contributes to the HSA of an eligible individual, the employer\u2019s contribution is treated as employer-provided coverage for medical expenses under an accident or health plan and is excludable from an employee\u2019s gross income up to the deduction limitation. There\u2019s no \u201cuse-it-or-lose-it\u201d provision, so funds can be built up for years. An employer that decides to make contributions on its employees\u2019 behalf must generally make comparable contributions to the HSAs of all comparable participating employees for that calendar year. If the employer doesn\u2019t make comparable contributions, the employer is subject to a 35% tax on the aggregate amount contributed by the employer to HSAs for that period.<\/p>\n Paying for eligible expenses<\/strong><\/p>\n HSA distributions can be made to pay for qualified medical expenses. This generally means those expenses that would qualify for the medical expense itemized deduction. They include expenses such as doctors\u2019 visits, prescriptions, chiropractic care and premiums for long-term care insurance.<\/p>\n If funds are withdrawn from the HSA for any other reason, the withdrawal is taxable. Additionally, an extra 20% tax will apply to the withdrawal, unless it\u2019s made after reaching age 65, or in the event of death or disability.<\/p>\n As you can see, HSAs offer a flexible option for providing health care coverage, but the rules are somewhat complex. Contact us with questions or if you\u2019d like to discuss offering this benefit to your employees.<\/p>\n \u00a9 2020<\/em><\/p>\n <\/body> Small business owners are well aware of the increasing cost of employee health care benefits. As a result, your business may be interested in providing some of these benefits through an employer-sponsored Health Savings Account (HSA). Or perhaps you already have an HSA. It\u2019s a good time to review how these accounts work since the […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,10,19,53],"tags":[8,11,12],"class_list":["post-15139","post","type-post","status-publish","format-standard","hentry","category-articles","category-news","category-small-business","category-updates","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15139","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=15139"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15139\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=15139"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=15139"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=15139"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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