What is an HSA?
A Health Savings Account (HSA) is a tax-advantaged personal savings account that can be used to pay for medical, dental, vision and other qualified expenses now or later in life. To contribute to an HSA you must be enrolled in a qualified high-deductible health plan (HDHP) and your contributions are limited annually.
Why would an employer offer an HSA?
Simply put, perks and savings for the employer and participants! Employers benefit from lower reported wages (FICA tax savings), enhanced overall benefits package, and improved employee engagement and satisfaction. Employees benefit from increased take-home pay (lower taxable income) and savings on qualified healthcare expenses. It’s truly a win-win benefit!
How it Works
- For 2024, Participants can make an annual election of up to $4,150 for self only HDHP coverage or $8,300 for family HDHP coverage.
- The employer deducts per pay-period the amount elected by the participant on a tax free basis. The participant can also contribute post-tax contributions (up to the maximum allowed) and recognize the same tax savings by claiming the deduction when filing your annual taxes.
- Eligible healthcare purchases can be made tax-free when you use your HSA. Purchases can be made directly from your HSA account, either by using your Benefits MasterCard, online bill-pay, or check – or, you can pay out-of-pocket and then reimburse yourself from your HSA.
- The interest on HSA funds grows on a tax-free basis. And, unlike most savings accounts, interest earned on an HSA is not considered taxable income when the funds are used for eligible medical expenses.
Why Participate?
HSAs save you money! The contributions you make to an HSA are deducted from your paycheck on a pre-tax basis – before federal income, social security, and most state taxes. The end results of your HSA contributions is a lower taxable income, and a tax advantaged vehicle to pay for out-of-pocket healthcare expenses and prepare for your healthcare costs in retirement. While your funds can be used to pay for immediate healthcare expenses tax-free, you can also save the money for healthcare expenses later in life. You can continue to contribute year after year and withdrawals (provided you are enrolled in an HDHP) can be made at any point in time. Whether you withdraw the money tomorrow, five years from now, or in retirement, funds used for qualified healthcare expenses are always tax-free.
HSAs help you:
- Reduce taxable income – Contributions lower your reported annual income, resulting in lower taxable wages.
- Save on healthcare expenses – Using pre-tax funds to pay out of pocket expenses can save you hundreds!
- Offset rising healthcare costs and individual financial responsibility.
- Prepare for healthcare costs in retirement.
|
Contribution |
Potential Tax Savings* |
Balance |
|---|---|---|
|
$50 (a month for 25 yrs) |
$4,418 |
$22,532 |
|
$200 (a month for 25 yrs) |
$16,590 |
$90,127 |
|
$6,900 (a year for 25 yrs family maximum) |
$47,696 |
$259,116 |
*For illustrative purposes only. Savings calculations are based on a federal tax rate of 15%, state tax rate of 5%, and 7.65% FICA. Balance calculations assume an average interest rate of 3%. Actual results may vary.
What’s Covered?
You can use the money tax-free to pay for eligible expenses such as:
- Copays & Deductibles
- Prescriptions
- Dental Care
- Contacts & Eyeglasses
- Hearing aids
- Laser Eye Surgery
- Orthodontia
- Chiropractic Care
Since it is a savings account, you are encouraged to save more than you spend. Unlike FSA funds which are use-it-or-lose-it, your HSA balance rolls over from year-to-year earning interest along the way. The account is portable, meaning if you ever leave your employer, you can take the HSA with you because it’s your money and your account.
Note: withdrawals for non-qualified out-of-pocket expenses are possible, but not advisable. If the withdrawal occurs before retirement age the withdrawn amount is taxed as income PLUS a 20% penalty is applied by the IRS. If the non-qualified withdrawal occurs after retirement age the withdrawn amount is only taxed as income, a penalty will not apply.
Who’s Covered?
An HSA covers qualified out-of-pocket expenses for you, your spouse, your tax dependents, even if they are not covered under an HDHP.
Keep Your Receipts
Your distributions will be reported on a 1099-SA tax form, typically mailed and posted to Proficient Connect (the participant portal) late January from Avidia Bank. Distributions from an HSA used to pay qualified medical expenses aren’t taxable. We recommend that you follow the IRS guidance on record keeping for your HSA transactions. You must keep records sufficient to show that:
- The distributions were exclusively to pay or reimburse qualified medical expenses,
- The qualified medical expenses hadn’t been previously paid or reimbursed from another source, and
- The medical expenses hadn’t been taken as an itemized deduction in any year.
Do not send these records with your tax return. Keep them with your tax records.
Managing My Account
We believe managing your HSA should be easy and convenient. Proficient Benefit Solutions offers a variety of ways to manage your account, access your funds, and receive communications.
Benefits MasterCard: Avoid out-of-pocket expenses with the Benefits MasterCard. Visit the Participant page to find out more!
Proficient Connect: Participants enjoy secure access to their accounts through the Proficient Connect online portal and mobile App. View account balances, reimburse through bill-pay, manage beneficiaries, view messages, and more and from any device! Visit the Participant page to find out more.
Direct Deposit Reimbursement: Participants can take the hassle out of check deposit by electing to receive reimbursements by Direct Deposit. Visit the Participant page to find out more.
Communication Options: Participants can elect to receive account balances and important plan reminders through email, text, or both! Visit the Participant page to find out more.