A Penny Saved
Reduce Your Taxes with Health Savings Accounts
By Jennifer Stoddard
October 15, 2009
Health care reform has been center-stage on the news lately. President Obama is focusing on health care reform on a national scale and locally the Utah Health Exchange is opening creative options and resources for companies. As such, many business leaders are taking a hard look at new avenues for providing health care coverage to their employees.
One option that employers should consider is Health Savings Accounts (HSAs), which can actually help employees save on their taxes. HSAs are savings accounts that can be opened when an individual enrolls in a high deductible health plan. Employers and employees can deposit money in an HSA that will result in a tax deduction. Quite simply, any money deposited will reduce the employee’s federal income tax. Just like an IRA, this deduction is an “above the line” deduction which means you get a 100 percent write-off against your adjusted gross income.
You can work with your benefits provider or certain local credit unions to set up your HSA.
For entrepreneurs who often have high deductible insurance plans, HSAs provide a way for employees and business owners to protect themselves financially during times of hospitalization, illness or other medical procedures. For example, The Muddy Boys is a small business that provides drywall services. With current rates the way they are, the company cannot afford to provide health insurance benefits for its employees. The owners, Ray and Woody Taylor, recently opened up an HSA account to provide a buffer for their workers and themselves.
“My employees and I can get hurt at work because we use a lot of power tools and lift a lot of things,” says Ray Woody, president of The Muddy Boys. “Insurance is so expensive and unless my arm’s been cut bad enough that it can’t be held together by duct tape, I can’t afford to go to the hospital. [My] Health Savings Account puts more money in my pocket rather than giving it to wealthy HMOs and high insurance premiums.”
HSAs are similar to an IRA account in a few ways. HSA money can be withdrawn from an employee’s paycheck and is pre-taxed, unlike a corporate cafeteria or medical flex plan. Employees will not lose any un-used money at the end of the year and any remaining balances at year-end can be carried over to the next year.
When employees need money, they can complete a withdrawal form or use a debt card that is tied to the account. The funds are immediately available to pay for over-the-counter medicine, prescriptions, co-pays, medical bills and procedures.
HSAs provide four tax breaks to individuals who contribute to an account:
1. Money contributed into an HSA is tax-deductible. Either you contribute into an HSA on your own, or your employer contributes on your behalf.
2. Money invested within the HSA is your money and it grows tax deferred.
3. Money can be withdrawn tax-free from your HSA at any time to pay for your family’s health care expenses.
4. Any money remaining in your HSA upon reaching the age of 65 is available to subsidize your retirement.
HSAs have been around since 2004 and have been helping individuals and families save thousands of dollars on their income taxes. You can only qualify for an HSA if you have a high deductible insurance plan. If your employer does not offer insurance, you will not be able to qualify for an account. Anyone under the age of 65 who buys a qualified high-deductible policy can open an HSA.
If you are an employer who struggles with the rising cost of health insurance, you should look closely at HSAs and not only lower your cost, but also provide a way for your employees to lower their taxes and put additional money into their pocket.
Thousands of Utah business owners and employees have already begin leveraging these accounts and enjoying the tax benefits. To get more information, I encourage you to ask your human resource executive or your benefits provider about these accounts and how your business and your employees can leverage their tax benefits.
Jennifer Stoddard is the associate vice president of member services at Family First Federal Credit Union. She can be reached at firstname.lastname@example.org
or at 801-255-6020.