The Win-Win Tax Benefits of HSAs and FSAs

woman excited about tax savings


You may have heard the term “win-win” to describe the benefits of Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). But who is winning at what and what exactly does that win look like?

While the everyday advantages of modern employee benefits are easily identified in employee satisfaction, HSAs and FSAs have unique benefits to both the employee and employer. Hence the “win-win!”

HSAs and FSAs are both pre-tax accounts employees can use to pay for healthcare-related expenses, but each has its own qualities that may entice different employees depending on their needs.

With Open Enrollment season just around the corner, let’s take a look at how HSAs and FSAs offer specific tax benefits and advantages that impact your organization and employees.


HSA Tax Benefits and Advantages

HSAs can be incredible tools for your employees to save money for upcoming healthcare expenses. Anyone with a high-deductible health plan can qualify for this account that sets aside and invests pre-tax dollars from their paychecks to cover a range of health care purchases.

HSAs offer tax-free contributions, earnings, and distributions and can roll over from year-to-year and job to job. An HSA is beneficial to an employee because they are not taxed to deposit or withdraw funds. Employers benefit because they are also not taxed to make contributions to their employees’ HSAs. This agreement makes HSAs a money-saving win-win in addition to the everyday health benefits they offer.


HSA Tax Benefits and Advantages

FSAs are smart, simple ways to help employees save on the routine medical, dental and vision expenses they expect to make throughout the year. Employees can choose an annual amount to contribute from their pay based on the amount they expect to spend on health care expenses not reimbursed by insurance.

FSAs are funded by pre-tax paycheck deductions, meaning that employees benefit from enjoying the full amount of their savings. Employers benefit because they pay less in taxes on that deducted income. On average, employers save 7.65% on every dollar contributed due to Social Security savings and employees save between 20 and 40% on their elections. Plus, when employers have more employees that enroll and utilize FSAs, their tax savings are only increased!


Additional Benefits of HSAs and FSAs

In addition to the specific tax benefits employees and employers experience with an HSA or FSA, there is also a range of benefits that your employees might not know about. For example, the HSA Store and FSA Store offer quick and easy ways for your employees to shop for HSA and FSA-eligible items. This helps them get a better idea of the products they can purchase (and hopefully helps you by having fewer product-related questions to field from your employees.)

Not to mention, offering HSAs and FSAs to your employees helps secure your organization’s image in your industry by demonstrating a commitment to your employees’ health and financial fitness. This makes your organization stand out as an elite choice for top talent looking for comprehensive benefits offerings.


How to Choose the Best HSA for your Employees

The HSA market has grown increasingly competitive in recent years with HSAs almost becoming commodities. It’s best to look for a provider that offers a truly different approach that delivers value at every stage and covers the spectrum of personas: spenders, savers and investors.


Look for an HSA that offers:

  • Employees the ability to manage their Clarity HSA and invest in real-time from a single platform.
  • The most competitive interest rates in the market.
  • Fully integrated, multi-path investment experience with options like Managed, Self-Directed, and first of its kind Brokerage model.
  • A virtual medicine cabinet that helps with managing monthly drug costs.
  • A built-in payroll advance option to help cover the unexpected.
  • Predictive analytic tools that guide intelligent long-term funding decisions.
  • Exchange-traded funds (ETFs) that offer consumers lower costs and diversified market return.
  • Fractional trading up to 8 decimal points so employees can enjoy ownership of high-value stocks like Apple or Berkshire Hathaway for as little as a penny. 
  • Convenient features like auto-rebalancing, real-time account opening and trading, on-demand investment statements, historical performance data of available funds and more.


And, make sure it is backed by dedicated customer service that’s with you every step of the way.


Customer Service that Really Supports

It’s clear that HSAs and FSAs offer incredible tax advantages for both employees and employers. When you choose Clarity to administer your HSA or FSA, you not only benefit from the everyday savings mentioned above, but you also enjoy a quality customer service team that can help guide you through the nuances of the benefits administration process.

The Clarity customer service team is ready to assist you this Open Enrollment season by anticipating your needs, providing exceptional service and always looking for new ways to make your benefits packages better. Reach out to us with any questions you may have about how the tax advantages of HSAs and FSAs can impact your organization. A Clarity representative will be more than happy to walk through your plans and see how you and your employees can get the most out of your benefits!