Trimming Healthcare Costs with Health Savings Accounts and Flexible Spending Accounts

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are financial tools designed to help individuals manage healthcare costs. Both are pre tax benefit programs that can help your team pay for medical expenses while reducing their tax bills. Offering these benefits can be a powerful tool for attracting and retaining staff. You save on payroll taxes, and your employees save money on healthcare.

One effective way to offer these benefits is through a Section 125 plan. This arrangement allows employees to elect pre tax contributions to an HSA or FSA during annual enrollment. Contributions are deducted from wages before taxes, reducing taxable income and increasing take home pay. Employers also benefit from reduced payroll taxes, while employees save on income and payroll taxes. Participation in either account is optional, and employees can choose whether or not to enroll, similar to how they might opt in or out of a health insurance plan.

FSAs are employer owned and subject to the use it or lose it rule, meaning unused funds are forfeited and returned to the employer at the end of the year, with no tax benefit, though some plans allow a limited rollover or grace period. HSAs, by contrast, are only available to those enrolled in a high deductible health plan, but the funds belong to the employee, roll over year to year, and can even be invested for growth.

To determine whether an HSA, FSA, or a combination is best for your business and your team, you can book a complimentary 30 minute consultation online at AzarvandTaxLaw.com or by sending us an email at [email protected].