Healthcare costs in the U.S. can be staggering and when something unexpected occurs not having the money to pay for it can be stressful. That's where a health savings account comes in.
A health savings account (HSA) is a tax-advantaged savings account offered by U.S. companies, which is available to eligible employees in the United States. An HSA helps people save money for qualified health expenses. Employees need to be enrolled in a high-deductible health plan (HDHP) for eligibility in an HSA.
Employees own the funds in an HSA and enjoy tax-deductible contributions, tax-free earnings, and tax-free withdrawals on medical expenses. Funds can be rolled over year-to-year, invested in other funds, and used later in life for retirement and other expenses.
How HSAs work
After an employee enrolls in an HSA-eligible health plan, they can start making pre-tax contributions from payroll deductions. Some employers opt to contribute to employees' HSAs as an added benefit.
Employees can withdraw funds tax-free to cover eligible healthcare expenses, including co-pays, prescriptions, dental work, vision care, or even basic supplies like bandages. Since health savings accounts typically have higher deductibles, employees can offset those costs by contributing to their HSA, where funds grow tax-free.
Why employers should offer an HSA
There are many benefits to offering HSAs, including:
- Attracting great talent. Health savings accounts are an added benefit for job seekers looking for tax-advantaged savings, making employers who offer them more attractive.
- Lowering insurance premiums. Pairing an HSA with an HDHP means lower monthly premiums, which allows employers to reduce what they contribute to employee health plans. Extra savings can be used for other company expenses.
- Tax advantages. Employer contributions are typically tax-deductible and not subject to social security, federal income tax, or Medicare taxes.
- Supporting employee financial wellness. Encourages saving for healthcare and retirement.
HSA vs. FSA
HSAs and flexible spending accounts both offer tax advantages to help cover eligible medical expenses, but there are a few ways they differ:
- HSAs are only offered to employees who choose a high-deductible health plan. FSAs are provided to employees, no matter what type of health plan they choose.
- HSAs roll over each year. FSAs are typically "use it or lose it."
- HSAs are owned by the employee and can be invested or taken when they leave the company. FSAs are employer-owned and can't be taken or invested.
Overall, HSAs give employees more flexibility with their money and offer long-term value, especially when employees save and invest their HSA funds.
Compliance and eligibility considerations
Health savings accounts are a great, tax-advantaged way to save for medical expenses, but there are specific rules to follow to comply with the IRS and other federal regulations.
Employees must:
- Choose an HDHP for health coverage
- Not have other health non-HDHP coverage except for additional types of insurance (e.g., accident, disability, long-term care) approved by the IRS
- Not be enrolled in Medicare
- Not be claimed as a dependent on another person's previous year's tax returns
- Be U.S. citizens, green card holders, or legal residents are eligible for HSAs
Employers must keep detailed records of all contributions, transactions, and distributions to remain compliant.
If you're a global employer with U.S. teams, you can still offer HSAs. It's important to work with a global benefits partner who will help you create benefits packages that are competitive and compliant, so you can attract the right talent.
How employers can set up and manage HSAs
The following steps will help you set up and manage HSAs for your employees:
- Begin offering HDHPs, which are needed to open an HSA
- Partner with a benefits provider or payroll system that supports
- If you are contributing to employee HSAs, establish what your contributions will be while adhering to federal regulations
- Communicate and educate employees on what an HSA is, why it's beneficial, and what it covers
FAQs
Can an employee use their HSA for family members?
Yes, employees can use HSA funds for qualified medical expenses even if family members and dependents aren't covered under their HDHP. An employee's dependents are generally qualified as HSA dependents.
What happens to the HSA if the employee leaves the company?
HSAs are owned by the employee, so they can keep using the funds, roll them into a new plan, or invest them, even after the employee leaves the company.
Are employer HSA contributions taxable?
Employer contributions can be excluded from employee payroll taxes, but will appear on W-2 forms for the employee.
Is there a limit to how much an employer can contribute?
HSA contribution limits are set by the IRS each year. In 2025, HSA contribution limits are $4,300 for self-coverage and $8,550 for family coverage. Employees over 55 years old can contribute an additional $1,000 to catch-up. If you contribute $1,000 to your employees' HSAs, they can contribute up to $3,300 more for the year.
Bolster your benefits with Pebl
Setting up your employees for success is the first step in setting up your business for success. You want to make sure you offer them what they need, but the options are staggering. Where do you even begin?
Pebl's Global Employee Benefits service takes care of benefits administration in 185+ countries worldwide. Our local experts craft perfect packages to attract and retain the best talent in the world. Couple that with our Global Payroll service which lets your distributed team access one centralized payroll system in near real-time? Suddenly global expansion doesn't look so hard.
When you're ready to talk, contact us.
This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided "as is," and no representations are made that the content is error-free.
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