Are your employees using their Health Savings Accounts?

By: Michelle Higgins

Publication: Benefits & Compensation Regulatory Alert

Date Posted: 11/16/2018

Many employees are unaware of the triple-tax advantages of their Health Savings Accounts (HSAs), despite some insurance companies reporting that they’re experiencing double-digit growth in this segment. A recent study shows that only 25 percent of employees with access to an HSA are using one, mainly due to a lack of knowledge when it comes to planning and estimating healthcare costs.

Triple-tax advantages

Health Savings AccountWith healthcare costs top-of-mind for consumers, employees may see an upward trend in this health savings option as employers shift gears towards offering this benefit.

Whether your company already offers an HSA, or it’s a benefit you’re considering, there are three main tax advantages to keep in mind:

  1. Employer contributions may be excluded from employees’ gross (taxable) income.
  2. Balances within the HSA can grow tax-free (and be carried forward each year).
  3. Money for qualified medical expenses can be withdrawn tax-free from the HSA.

Drilling down the details

Programs such as HSAs are designed to give individuals tax advantages to offset healthcare costs. Any eligible individual can contribute to an HSA — the employee, the employer, or both may contribute. What some employees may not realize is that contributions remain in the employees’ accounts until they use them, and an HSA is “portable,” meaning it stays with employees if they leave the company. Once someone reaches 65, they can withdraw HSA money for any expenses without a tax penalty. Those under 65 would have to pay a penalty for non-medical withdrawals. To be eligible, employees must have a High Deductible Health Plan (HDHP). Generally, employees may have no additional health coverage.

If you make contributions to your employees’ HSAs, you deduct the contributions on your business income tax return for that year. If the contribution is allocated to the prior year, you still deduct it in the year in which you made the contribution.


Most employees who could be contributing to an HSA are not. More education is needed as the HSA trend continues in the light of rising healthcare costs.


What medical expenses are covered by HSA funds?


HSA funds never lost

About the author
Michelle Higgins - Human Resources Editor

Michelle Higgins is an Associate Editor on the Human Resources Publishing Team and she creates content on a variety of employment-related topics including benefits, compensation, overtime, wage deductions, exempt/nonexempt employees, health and retirement plans, independent contractors, and child labor.

Expert Help Icon

Have a compliance question for Michelle? The J. J. Keller Expert Help tool provides you direct access to Michelle and other trusted experts to help answer your toughest compliance questions.

Benefits & Compensation Regulatory Alert

This article was featured in the Benefits & Compensation Regulatory Alert newsletter.

The Benefits & Compensation Regulatory Alert newsletter helps you stay ahead of emerging regulations and trends on pay and other issues that can impact your organization’s employment benefits and compensation program. Click here to sample this newsletter for free or view our full library of HR compliance publications.