Health Savings Accounts FAQs for Employees

A health savings account (HSA) offers your employees a tax-advantaged way to save and pay for qualified out-of-pocket healthcare expenses. The employee must be covered by a high-deductible health plan to be able to take advantage of an HSA. Plus, HSAs like Clarity’s also offer opportunities for long-term saving and investing.

A high-deductible health plan is health insurance with deductible amounts that are greater than standard insurance plans. The monthly premiums for this type of health insurance are typically less expensive because employees agree to take on more of the upfront cost of medical care.

Yes, it is! High-deductible health plan premiums are much lower than the typical HMO and PPO premiums. Many businesses are finding these health plans more affordable for their companies and their employees. This helps employers save money while offering more options to employees who are increasingly demanding evolved benefit offerings.

Simply put, you’re in control! Built for unpredictability, the Clarity HSA offers on-demand, interest-free payroll advances to cover unexpected healthcare costs. That way, employees aren’t just covered - they’re confident they can keep expenses under control. Employees can also take advantage of multiple national banking partners and dozens of investment options to keep their HSA savings safe and growing. Through Clarity’s secure portal, we provide employees with an up-to-date list of the mutual funds offered as well as recent performance information for those funds.

They sure do! Employee contributions can be made to an HSA on either a pre-tax or post-tax basis. When employees make pre-tax contributions, it is done through a Section 125 plan (also called a salary reduction or cafeteria plan), generally through direct deposit of payroll. If employees contribute funds on a post-tax basis, the amount can be deducted from their taxable income. Either way, it’s a win-win!

Nope, it’s not required. Employers are under no obligation to make any contributions to their employees’ HSAs. Many employers do find that making a contribution to employees’ HSA accounts may help improve the adoption of HDHPs and HSAs, especially if they are transitioning from a more traditional type of health coverage. Contributing to employees’ HSAs is also a great incentive to attract top talent in your field.

Yes, you can. An employer may fully fund the employee’s HSA at the beginning of the year. However, HSAs belong to the individual, not the employer. So the employer has no further control over the accounts after they have been funded. As a result, many employers elect to fund employees’ HSAs periodically throughout the year. This allows you to have more control over how much you contribute to each employee.

That depends. The tax treatment of employer HSA contributions depends on how the business is incorporated. For sole proprietors, partnerships, and S-corporations, contributions to a partner’s HSA will be treated as a distribution to the partner and included in the partner’s income. It may also be deductible by the partner but not by the business (see IRS Notice 2005-8 for treatment of HSA contributions in exchange for guaranteed payments of services rendered for partners and two-percent shareholder-employees of S-corporations). For larger corporations, employer contributions are treated as employer-provided coverage for medical expenses under an accident or health plan.

Yep! Employers may make pre-tax contributions to their employee’s HSAs if they have a cafeteria plan in place that provides for HSA contributions. These contributions are not subject to withholding from wages for income tax or subject to FICA, FUTA, or the Railroad Retirement Act. A win-win for you and your employees!

Yes and no. In general, employer matching contributions would likely violate comparability testing (i.e. they must make comparable contributions for all eligible individuals with comparable coverage during the same period). However, matching contributions through a section 125 cafeteria plan is not subject to comparability testing, but section 125 nondiscrimination rules would apply.

Yes, you can, but only with a limited-purpose FSA so as not to duplicate the coverage provided by the HSA. The limited-purpose FSA is designed to complement the HSA and may be established to pay for eligible vision and dental expenses. The FSA is not permitted to cover medical expenses because the tax-favored HSA is used to fund these costs first.

Not at all. As an employer, you won’t be responsible for substantiating the employee’s HSA expenses. The individual account holder is responsible for determining that their account funds are being properly used and would be required to provide supporting evidence on the use of their funds if requested under IRS audit.

Virtually any time! Employees contributing to an HSA through a cafeteria plan may make adjustments to their contributions at any time as long as the change only affects future contributions.

Nope. You do not own your employees’ HSAs, nor are you responsible for how the funds are managed by the employee. The employee fully owns the contributions to the account as soon as they are deposited, just as with a personal checking or savings account to which you would deposit their compensation. It’s up to each employee to be responsible for how they use their HSA funds.

Generally, yes. Employer contributions must be comparable, that is, they must be in the same dollar amount or percentage of the employee’s deductible for all employees in the same “class”. However, with the passage of a new law in 2007, higher contributions are allowed for non-highly compensated employees. In addition, you can vary the level of contributions for full-time vs. part-time employees and employees with self-only coverage vs. family coverage. Keep in mind you do not need to consider employees who have not elected the high deductible health plan coverage because they are not eligible for HSA contributions.

Owners and officers with greater than a two-percent share of a Subchapter S corporation or partners in a partnership or LLC cannot make pre-tax contributions to their HSAs by salary reduction. Any contributions made to their HSAs by the company are taxable as income. However, they can make their own personal contributions to their HSAs and claim the contributed amount as a deduction on their personal income taxes.