Employer Guide to Health Savings Accounts

Health Savings Accounts (HSAs) are tax-advantaged accounts that allow employees enrolled in a High Deductible Health Plan (HDHP) to save for qualified medical expenses. For employers, HSAs can potentially reduce health insurance premiums and provide a valuable benefit that employees retain even if they leave the company.

HSA Eligibility Requirements

To contribute to an HSA, an individual must:

• Be covered under an IRS-qualifying High Deductible Health Plan
• Not be enrolled in Medicare
• Not be claimed as a dependent on another person's tax return
• Not be covered under any other health plan that is not an HDHP (including a spouse's non-HDHP plan or a general-purpose health FSA)

The IRS sets annual limits on HDHP deductible minimums, out-of-pocket maximums, and HSA contribution limits. These figures are adjusted annually for inflation. For 2026, the HSA contribution limit is $4,400 for self-only coverage and $8,750 for family coverage; an additional $1,000 catch-up contribution is allowed for account holders age 55 and older. The 2026 HDHP minimum deductible is $1,700 (self-only) / $3,400 (family), and the out-of-pocket maximum is $8,500 (self-only) / $17,000 (family). Confirm current figures in the IRS revenue procedure each year before open enrollment.

Employer Contributions

Employers may contribute to employees' HSAs, which provides several advantages:

• Employer contributions are excluded from employees' gross income
• Employer contributions are not subject to FICA taxes for either the employer or employee
• Contributions are tax-deductible as a business expense
• Employer contributions count toward the annual HSA contribution limit

If you make employer contributions, be aware of the comparability rules: if you contribute to any employee's HSA, you must make comparable contributions (same dollar amount or same percentage of the HDHP deductible) to all eligible employees in the same category. Employers should consult legal counsel to determine appropriate employee categories for HSA contributions. Alternatively, you can make contributions through a Section 125 cafeteria plan, which allows different contribution amounts.

Advantages for Employers

Offering an HDHP with HSA contributions can benefit the organization:

• HDHP premiums are typically lower than traditional plan premiums
• Employer HSA contributions can offset the higher deductible while still potentially reducing overall costs
• HSA contributions are not subject to FICA, potentially saving the employer 7.65 percent on contribution amounts
• HSAs may increase employee satisfaction and financial wellness
• The benefit is portable, which employees value

Employee Education

HSAs are often underutilized because employees do not understand them. Effective education should cover:

• How HDHPs work and how they differ from traditional health plans
• How to open and fund an HSA
• What expenses qualify as HSA-eligible
• The triple tax advantage: contributions are pre-tax, growth is tax-free, and withdrawals for qualified expenses are tax-free
• The ability to invest HSA funds and use the account as a long-term savings vehicle
• The importance of keeping receipts for qualified medical expenses
• Employees should consult a tax advisor for details on HSA withdrawals after age 65, as penalty-free withdrawals for any purpose may be available, though income tax applies to non-qualified withdrawals

Compliance Considerations

Employers offering HSAs should be aware of:

• Annual contribution limits set by the IRS
• The catch-up contribution allowance for employees 55 and older
• Comparability rules for employer contributions outside a Section 125 plan
• Employers should consult legal counsel for ERISA-related compliance when contributing to HSAs or processing contributions through payroll
• Employers should verify COBRA applicability with legal counsel or a benefits advisor
• Nondiscrimination requirements under Section 125 if contributions are made through a cafeteria plan
• State tax treatment of HSAs varies, and employers should consult state-specific tax guidelines or a tax advisor for accurate information