Health Savings Account (Business)
An HSA is a tax advantaged trust or custodial account set up to pay or reimburse a taxpayer for incurred medical expenses.
Commonly referred to as an HSA or Medical Savings Account
Do I Qualify for the Health Savings Account (Business)?
To qualify for the Health Savings Account deduction, you must be a non-owner employee that is enrolled in a high deductible health plan, does not have other non permitted health coverage, is not covered by medicaid, and cannot be claimed as a dependent on someone else's tax return.
2022 Health Savings Account (Business) Details
A Health Savings Account (HSA) is a tax-advantaged custodial account set up to save money to pay for or be reimbursed for qualified medical expenses. Taxpayers who are eligible for the plan may contribute (or have their employer contribute) a certain amount (determined annually) to the plan each year that they are eligible. Unlike a FSA, the amounts contributed each year do not have to be used in the year that they are contributed. The contributions to the plan may be invested and the earnings qualify for the same tax advantage treatment as the contributions.
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Benefits
Provided the employer follows applicable nondiscrimination and/or comparability rules, employer contributions are not considered income to the employee and do not result in increased taxes. The contributions are also deductible as a payroll expense for the business. If the employer allows employees to make contributions via payroll deduction through an IRC Section 125 cafeteria plan, the employee and employer can also save on payroll taxes.
Considerations
For entities other than C corporations there are special rules and limitations that apply related to contributions for business owners. Since this strategy is also available to the individual, it can be applied there.
Assumptions When Taking the Health Savings Account (Business)
•Combined contributions from employer and employee will not exceed annual limits.
•Employer will follow any applicable nondiscrimination and/or comparability rules.
•Employer contribution will be the same for all employees regardless of age and family status.
Requirements to Claim the Health Savings Account (Business)
In order for the employer to contribute to an HSA on behalf of the employee, the employee must be eligible for the HSA. Eligible employees: are enrolled in a high deductible health plan; don't have other non permitted health coverage; are not covered by medicaid; and cannot be claimed as a dependent on someone else's taxes.
In addition to eligibility rules, the business may need to abide by any applicable nondiscrimination and/or comparability rules. Failure to comply with these rules could result in a excise tax on the employer contributions.
Business Entities That Can Claim the Health Savings Account (Business)
•Schedule C
•S Corporation
•C Corporation
•Partnership
The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.