A Health Savings Account (HSA) is composed of funds contributed by the employee, and sometimes also the employer. Generally, contributions made by an employer to the health savings account (HSA) of an eligible employee are excludable from an employee’s income and are not subject to federal income tax, Social Security or Medicare taxes. In addition, employer contributions are deductible as a business expense to the company.

HSA criteria

In order to contribute funds to an HSA, the account must be integrated with a qualified group High Deductible Health Plan (HDHP). An HDHP has a higher deductible in favor of a lower monthly premium. HSAs can help employees save money in the event they have high out-of-pocket costs for medical treatment, services, or prescriptions.

Authorized HSA expenses

HSA funds may be used to pay for medical expenses that are not reimbursed by the health plan, such as deductibles, copayments, and coinsurance amounts.

Premiums may not be covered by HSA funds.

Funds roll over year-to-year if they are not spent. All funds in the HSA belong to the employee at all times, even after termination of employment.

Advantages of an HSA

Contributions to an HSA are tax-deductible for both the employer and employee. Fund withdrawals to cover for qualified medical expenses are tax-free, as is any accumulated interest.

Learn the difference between HSA vs HRA insurance.