HSA's
An HSA (Health Savings Account) is used in conjunction with a qualified high deductible health plan or consumer-driven health plan (HDHP or CDHP). These plans will still cover someones annual physical exams but everything else is subject to meeting the deductible. The minimum deductible for an HSA qualified health plan is currently set at $1350/annually but most of the options from carriers are typically $5,000+/year deductibles. These accounts are set up with a qualified vendor who will collect the premiums from the employer (who may deduct some or all of the cost from employees paychecks). Cards are usually issued to the employees to pay for the services or employees may submit receipts. We recommend they hold onto receipts in the event of a plan audit to validate certain expenses if asked. One concern with launching an HSA is that because they do not provide much in the way of care prior to meeting a larger deductible, they are often cheaper than similar non HSA plans, this can be a bit of a trap for lower paid workers who chase the lower premiums without setting aside funds to the HSA account to cover the out of pocket costs. Two common ways to combat this problem are employer contributions to the HSA account in the initial year or ongoing year and increased enrollment education so people understand that an HSA compatible medical plan should always be used with an HSA. The main advantages of an HSA plan are lower premiums, pre-taxable accounts and rollover of those accounts. The actual HSA itself can allow for up to $3,500 for individuals and $7,000 for families in pre-taxed money to be set aside to pay for unreimbursed medical expenses. We estimate US average tax savings to be roughly 25% based on 2017 data. For example, an annual contribution of $3,500 would save roughly $875 in taxes for the year. This means that for medical bills up to this threshold, while the employee would paying for those services themselves, the actual cost to cover it would feel like $2,625 net rather than using after-tax money to cover those expenses. The company also saves on employee contributions by no longer paying payroll tax on those earned dollars. Since it is a pre-taxed contribution it is not subject to FICA, FUTA, SUTA or Workers Compensation, we estimate this savings to be roughly 12% for the employer. Using our example of $3,500 in employee contributions, the company would save $420 in taxation. The company usually pays the admin fee for the account. This ranges from $2.75 per employee per month up to $7.50 per month depending on the vendor and features of the account. We usually structure the minimum contribution to be large enough where the savings would offset this fee for the employer to bring the net cost of offering an HSA to zero. For example, a min monthly employee contribution of $50 would result in a $6 per month tax break to the company, thereby offsetting up to $6 in admin fees. HSAs can only be used for qualified care that is not covered by a qualified medical plan. If someone enrolls in an HSA in one year but then changes to a new plan non HSA next year, they may roll over the funds in the account but may not use them until a new HSA compliant plan is put back in place. Withdrawing funds for non-HSA compliant costs will cost the income tax rate on the funds plus a 20% penalty tax. Funds can be withdrawn at age 65 with only the income tax part being due or can continue to be held on to and applied to medical costs not covered by Medicare. After age 65, no new contributions are permitted. If the employee leaves the company, the HSA funds go with them and they are able to set up a solo HSA with various vendors. Other types of tax-advantaged accounts.
FSA's FSAs are similar in theory to HSAs but cannot be used at the same time for medical reasons (you could use it for dental and vision costs that the HSA does not cover though). To keep things simple, we usually suggest an either/or approach but technically you could offer both to the same person. FSAs can be applied to any medical but do not roll over other than a limit of $500 per year. The annual contribution limit on an FSA is $2,700 for an individual or $5,000 for a family. Unused FSA funds go back to the employer at the end of the year and are not to be refunded to the employee. The company can use these funds to offset future admin fees or apply them evenly across all employees (employee lunch catered or other appreciation efforts are common uses). FSAs are not portable and only employers may set up these accounts. HRA's HRA is similar to an HSA but the account and the funds are owned and paid for by the company. Contributions are not subject to wage taxation. The company sets the amount it wishes to contribute up to $5,150 for an individual and $10,455 for a family and sets the rollover amount. Since all funds are owned by the company until used by the employee, if someone leaves, the employer has the ability to recapture the unused portion of the funds. HRAs are not portable between jobs, only employers may set up HRAs. FSA dependent care accounts are similar to a normal FSA but can be used to pay for childcare. If your employees currently pay for childcare are using take-home wages they could save a lot of money. Average child care in the USA costs an annual average of $10,972 according to a care.com study, even more stunning, the report noted that 1/3 US households with child care needs pay 20% of income towards this. An FSA dependent care account allows the employee to set aside $2,500 as an individual or $5,000 for a family. This could equal an average of $1,250 for the employee and $600 for the employer each year. FSA transit accounts allow employees to contribute up to $3,180 a year (or $265/month). This can be used to pay for public transit passes or parking costs. FSA adoption accounts allow employees to contribute up to $14,080 towards offsetting adoption costs. We offer all of these services through several top-rated national vendors and shop to find the best value for our clients. If you have any other questions on these accounts please let us know and we'll be happy to help. 📷
