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Best Practices Involving HSA Utilization

Many companies utilize Health Savings Accounts (HSAs) as a way for employees to save money through tax advantages. HSAs are savings accounts available to employees enrolled in a high-deductible health plan, and these accounts let employees set aside pre-tax dollars for qualified medical expenses. Notably, contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free.

Both employers and employees can contribute to an employee’s HSA, but it’s important to note that the accounts are subject to individual and family coverage annual contribution limits set up by the IRS.

In order to use the HSA correctly, below are some common mistakes to avoid:

  • Using HSA dollars on nonqualified expenses. Be sure to research what is considered eligible under IRS guidelines before making a purchase. The HSAstore.com is a user-friendly place to use funds.
  • Overdrawing your funds. There are tax consequences by overdrawing from the HSA.
  • Over-depositing funds into your account. Similar to overdrawing the account, exceeding the IRS-determined annual maximum can also lead to tax consequences.
  • Faulty recordkeeping. It is always good practice to keep a record of transactions in the event that eligibility needs to be proven.

As an employer, it’s important to provide education and resources to employees to prevent HSA mistakes from occurring. The better an employee understands what an HSA is and the rules surrounding it, the more likely it will be used appropriately.

 

If you have any questions regarding HSAs, please contact the Creative Benefits, Inc. ESR team.